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
Content disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more here: https://think.ing.com/content-disclaimer/
Recommended Content
Editors’ Picks
AUD/USD failed just ahead of the 200-day SMA
Finally, AUD/USD managed to break above the 0.6500 barrier on Wednesday, extending the weekly recovery, although its advance faltered just ahead of the 0.6530 region, where the key 200-day SMA sits.
EUR/USD met some decent resistance above 1.0700
EUR/USD remained unable to gather extra upside traction and surpass the 1.0700 hurdle in a convincing fashion on Wednesday, instead giving away part of the weekly gains against the backdrop of a decent bounce in the Dollar.
Gold keeps consolidating ahead of US first-tier figures
Gold finds it difficult to stage a rebound midweek following Monday's sharp decline but manages to hold above $2,300. The benchmark 10-year US Treasury bond yield stays in the green above 4.6% after US data, not allowing the pair to turn north.
Bitcoin price could be primed for correction as bearish activity grows near $66K area
Bitcoin (BTC) price managed to maintain a northbound trajectory after the April 20 halving, despite bold assertions by analysts that the event would be a “sell the news” situation. However, after four days of strength, the tables could be turning as a dark cloud now hovers above BTC price.
Bank of Japan's predicament: The BOJ is trapped
In this special edition of TradeGATEHub Live Trading, we're joined by guest speaker Tavi @TaviCosta, who shares his insights on the Bank of Japan's current predicament, stating, 'The BOJ is Trapped.'