Japan: Industrial production records biggest fall in two years
|The sharp decline in industrial production indicates that Japan’s second-quarter GDP rebound should be limited, and it is clear that the Bank of Japan will not change its easing stance anytime soon given the weak economic environment.
Industrial production falls -7.2% in May (vs -0.3% market consensus)
While overall production has been fragile, vehicle production was particularly weak in May with a -9% drop, recording the third consecutive month of decline. China’s lockdowns disrupted the supply of auto parts to Japanese automakers. The output of tech products contracted significantly as well. Electrical machinery, including batteries for e-vehicles and home appliances, plummeted by -6.7% , and electronic equipment also fell by -11.4%. Meanwhile, the gain in petroleum and chemical products stood out, rising 7.6% in May following a 1.7% gain in April, with external and internal demand for petroleum products holding up relatively well.
Going forward, we expect a positive technical payback from the relaxation of China’s lockdown, however, the recent slowdown in the US economy is likely to create headwinds for the fourth-quarter recovery.
Based on today’s data release, in addition to the weaker-than-expected consumption outcome last week, we revise down Japan’s second-quarter GDP from 0.5% quarter-on-quarter seasonally-adjusted to 0.3%, and the 2022 annual GDP from 1% year-on-year to 0.8%.
The contraction in industrial production intensified in May
Source: CEIC
Bank of Japan will remain unchanged
Today’s data supports the Bank of Japan’s longstanding claim that the economy is in need of support from accommodative monetary policy. External conditions will further push the yen and longer-term yields higher as the yield differential widens, but without clear evidence that the economy is on the recovery path, the Bank of Japan will have no choice but to stick to its current policy position.
Read the original analysis: Japan: Industrial production records biggest fall in two years
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.