Japan's industrial production to inch 0.5% higher in April

Modest uptrend for 5 months in a row.

According to DBS, industrial production (April, due Friday) is expected to rise 0.5% MoM sa, maintaining the modest uptrend for the fifth consecutive month. Government’s surveys on manufacturers’ production plans have continued to show an improvementin April. Inventory ratio in the manufacturing sector has also fallen from the peak.

Here's more:

Consumption demand was an important growth driverin the firstfew months this year,thanksto the rise in consumer confidence and the surge in stock market prices.

Going forward, growth contributionsfrom investment should begin to increase from 2Q. The implementation ofthe government’sJPY 10trn
extra budgetstarted in April.

Higher profits earned by exportersshould also encourage private investmentin the coming months. Amongstthe leading
indicatorsforinvestment, new contracts of public worksrose strongly in April, and machine ordersshowed a nascent pickup in March.

That said,there are still a number ofriskssurrounding the growth outlook. Sentiment effects can’tlastforlong, especially given thatthe actual economic conditions have continued to underperform the stock market.

The Nikkei plunged 7% last Thursday,the biggest daily drop overtwo years,triggered by worries about China slowdown and US QE exit.

Going forward,there will also be questionsregarding whetherthe Japanese government can present a credible economic reform plan in mid-June, maintaining investors’ confidence aboutJapan’slong-term growth capabilities and fiscal sustainability. The external economic environmentis also a challenge.

If global demand stays weak for a prolonged period, a recovery in Japan’s exports will be delayed, even with the help of a weaker yen.

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