MNI BRIEF: Japan May Factor Output Hits 1st Rise In 2 Months

Japan’s industrial output rose 0.5% m/m in May, the first increase in two months, after a 1.1% decline in April, driven by higher automobile production, data from the Ministry of Economy, Trade and Industry showed Monday. 

Production of automobiles rose 2.5% m/m, rebounding from April’s 0.9% drop, as the effect of earlier front-loaded production eased. However, output of electronic parts and devices declined.

Industrial production is closely watched by Bank of Japan economists as it reflects both external and domestic demand and helps assess the pace of the ongoing recovery.

Based on its manufacturer survey, METI revised up its June forecast to a 0.3% rise from a previously expected 3.4% fall, before projecting a 0.7% decline in July. Adjusting for the usual optimism in survey responses, METI estimated a 1.9% drop in June output.

Under this assumption, output is expected to fall 0.5% q/q in Q2, following a 0.3% decline in Q1, marking the second consecutive quarterly contraction.

BOJ officials are closely monitoring trends in production and exports to assess the economic outlook amid a slowing U.S. economy and weak forecasts for automobile output, expected to fall 3.4% in June and 4.4% in July.