General machinery led the declines in the sector.
Japan’s industrial production (IP) fell 2.1% MoM in June, which leaves a less impressive 4.9% QoQ rebound in Q2 after a 5.3% contraction in Q1.
According to JP Morgan, the fall in June was led by general machineries, such as semiconductor-producing equipment and conveyors in factories. The firm added that the industrial production decline was broad as 12 of its 15 sectors experienced the slip.
“With the less impressive rebound in the Q2 IP and core capital goods shipments, we revised down our Q2 real GDP growth forecast to 2.5% from 2.8%,” the firm said.
For Q3, JP Morgan noted that IP looks promising with manufacturers’ output projected to gain 2.7% MoM in July and 3.8% in August through the expected rebound in the capital goods sector.
“However, it is hard to say whether the unplanned fall in June and projected rebound in July and August reflected just a delay of production or more worrisome decline in new orders,” the firm added.
Meanwhile, factory shipments fell 0.2% MoM which is less than outputs. Shipments rebounded 7.4% QoQ after a 4.5% slip in Q1.
For Q2, inventory level fell 6.9% QoQ whilst inventory to shipment ratio remained relatively high. The core capital goods shipment which is a proxy of capex, fell 1.2% MoM in June compared to the 4.6% decline in May.
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