Japan industrial output increase hints at more stable growth

[TOKYO] Japan's factory output rebounded in June from a decline in May as production of cars and industrial chemicals increased, suggesting economic expansion may be on a more stable footing.

Industrial output rose 1.6 per cent in June from the previous month, just below the median estimate for a 1.7 per cent increase and following a 3.6 per cent decline in May.

Manufacturers forecast a steady increase in output in coming months, offering further evidence that firm overseas demand and gains in consumer spending could support overall growth in Japan's economy.

"Overall, the trend looks healthy due to domestic demand and demand from emerging markets, said Norio Miyagawa, senior economist at Mizuho Securities. "It's safe to say the economy continued its expansion in April-June and the forecasts point to further growth in output."

Transport sector output rose 4.2 per cent in June, rebounding from a 13.0 per cent tumble in the previous month, as output of passenger cars and automobile engines recovered.

Output of chemicals rose 3.4 per cent in June, also a rebound from a 2.2 per cent decline in May.

Inventories across all industries fell 2.2 per cent in June, the biggest decline in more than six years, as inventories of cars, steel, and electronic equipment were reduced.

Some economists were concerned that inventories in the past few months were too high, and that companies would have to cut output.

However, the decline in inventories in June shows that companies still have room to expand output, said Mizuho Securities' Miyagawa.

Manufacturers surveyed by the ministry expect output to rise 0.8 per cent in July and 3.6 per cent in August, which also shows that gains in output are likely to be maintained.

Industrial output rose 1.9 per cent in the April-June quarter, handily exceeding the 0.2 per cent increase seen in January-March.

Given the close correlation between industrial output and gross domestic product this suggests the overall economy accelerated in April-June.

The positive output reading follows data last week showing the biggest increase in household spending in almost two years and an increasingly tight labour market, building optimism that the economy will maintain its upward momentum.

REUTERS