Business / Economy

Industrial output climbs a surprise 1%, raising bar for BOJ action

by Keiko Ujikane

Bloomberg

Industrial production unexpectedly increased in September, potentially raising the bar for an expansion in stimulus when Bank of Japan policy-setters meet on Friday.

Output climbed 1 percent from the previous month, exceeding all 32 estimates in a Bloomberg survey in which the median forecast was a decline of 0.6 percent.

Electronic parts, devices and chemicals led the advance last month in the face of a Chinese slowdown that has undermined Japanese exports.

The output report was viewed as a crucial data point by BOJ officials as they prepared to consider whether to step up what is already an unprecedented asset-buying program, people with knowledge of the discussions said last week. Yen trading reflected some reduction in expectations for action from the BOJ, with the currency up 0.2 percent following the release.

“The positive production data requires no change for the BOJ’s optimistic view for the economy,” said Kazuhiko Ogata, an economist at Credit Agricole SA. He forecast a 0.5 percent increase in output, which was the highest estimate in the Bloomberg survey.

“Still, this doesn’t change the fact that uncertainties are still high for the outlook of Japan’s economy and the BOJ is far from 2 percent inflation target,” Ogata said. “Additional easing remains a question of when, not if.”

Production slid 0.9 percent from a year earlier. Companies forecast it would jump 4.1 percent in October from September, before dropping back 0.3 percent in November.

Economists remain split on whether the BOJ will boost monetary stimulus at its meeting Friday. While 16 of 36 analysts surveyed by Bloomberg said they expect Kuroda and his board to ease further, eight forecast easing at a later date and 12 said they saw no prospect for change in the foreseeable future.

Data on hiring, spending and inflation also are set to be released Friday. A government report Wednesday showed that retail sales gained 0.7 percent in September from August, missing a 1.1 percent increase estimated by economists surveyed by Bloomberg.

Analysts lowered their projections for growth after a government report last month showed that production unexpectedly fell in August. Also, gross domestic product shrank in the second quarter, and is forecast to rebound just 0.6 percent in the third quarter, according to a Bloomberg News survey conducted from Oct. 2 to Oct. 7. The forecast, which includes some predictions of a contraction in the third quarter, was lower than the September survey of 1.2 percent growth.