MNI BRIEF: Japan Factory Output Rises; 1st Time In 3 Months

Japan's industrial output rose 1.7% m/m in June, marking the first increase in three months after a 0.1% decline in May, data released by the Ministry of Economy, Trade and Industry showed on Thursday, driven by stronger production of electronic parts and devices, as well as general-purpose and business-oriented machinery.

Automobile production edged up 0.1% m/m in June, following a 2.5% rise in May. The modest gain suggests that front-loaded exports have peaked and carmakers are now feeling the impact of tariffs.

Industrial output is a key indicator for Bank of Japan economists in assessing the strength of the ongoing modest recovery, as it reflects trends in both external and domestic demand.

Based on its manufacturer survey, METI projected industrial production would rise 1.8% in July, revised up sharply from a -0.7% forecast made last month, before increasing a further 0.8% in August. However, after adjusting for the typical upward bias in output plans, METI expects July production to fall 1.0% m/m.

Assuming flat output in September, production would rise 0.5% q/q in Q3, rebounding from a 0.3% contraction in the second quarter and marking a second straight quarterly increase.

Despite the improved outlook, BOJ officials remain cautious as output in the transport equipment sector is expected to decline 5.5% in July and 0.8% in August.