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Japan Factory Output Surges in December on Strong Exports

Manufacturers have steadily risen production due to global demand but domestic consumption remains key to recovery. 

Japan Factory Output Surges in December on Strong Exports
A chemical plant stands illuminated at night in the Keihin industrial area of Kawasaki, Kanagawa Prefecture, Japan. (Photographer: Akio Kon/Bloomberg)

(Bloomberg) -- Industrial production in Japan accelerated in December, pushing output to the highest level since the global financial crisis. The third straight month of rising factory output points to solid economic growth in the fourth quarter.

Highlights

  • Industrial production rose 2.7 percent in December from November (forecast +1.5%).
  • Year-on-year production climbed 4.2 percent (forecast +3.3%).
  • Production is forecast to fall 4.3 percent this month compared with December, and rise 5.7 percent in February.
  • The production index reached the highest level since 2008.
  • Major contributors to December production were transportation equipment and general purpose machinery, the economy ministry said.
  • A big part of the expected drop in January output is a forecast for a 17.7% decline in production of transportation equipment, including autos and auto parts, the ministry said.

Key Takeaways

Strong global demand has driven a year-long recovery in exports, prompting Japanese manufacturers to steadily raise production throughout 2017. Yet increasing domestic consumption remains key to Japan’s economic recovery becoming self-sustaining. A raft of data released on Tuesday showed that consumers remain cautious about spending in the absence of bigger pay increases.

Japan Factory Output Surges in December on Strong Exports

Economist Views

  • "The numbers look good, which is my simple impression," said Hiroshi Hanada, head of economic research at Sumitomo Mitsui Trust Bank, adding that the Japanese economy likely expanded again in the fourth quarter. "Production is rising firmly on a quarterly basis, too.”
  • While output may fall in January, it is forecast to rebound in February, Hanada noted. "I don’t think the upward momentum for production will be lost."
  • “It’s debatable whether domestic demand is strong, but the consensus is that exports will continue to rise,” said Yasutoshi Nagai, chief economist at Daiwa Securities Co. "So production will remain strong and keep going up."”
  • The January forecast is a bit concerning, but it’s unlikely to change the general trend, Nagai said.

--With assistance from Yoshiaki Nohara

To contact the reporters on this story: Yuko Takeo in Tokyo at ytakeo2@bloomberg.net, Connor Cislo in Tokyo at ccislo@bloomberg.net.

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig, James Mayger

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