Japan's production data likely slow down in September

The latest Q3 BoJ Tankan survey showed that the current business conditions DI for large manufacturers fell and non-manufacturers and other companies are also showing concern over outlook. The August production data was also weak, showing a second consecutive month of decline mainly due to the unstable export environment, especially to emerging economies including China. 


The BoJ's October monthly outlook report showed no changes in economic assessments. There is a gap between the assessment by the government and the BoJ especially regarding exports and production. The BoJ is probably going to pay close attention to the September economic figures which come out at the end of October.

In the government's October Monthly Economic report, the overall assessment was revised down to "The Japanese economy is on a moderate recovery, while weakness can be seen in some areas." This corresponds to the assessment from October 2014 when the BoJ implemented additional QQE last time. 

Production data for September (to be announced on 29 October) is likely to show another weakness, forecasts Societe Generale. After seeing the weak production data, the BoJ could revise down the bank's assessment in the semi-annual economic and inflation report and implement additional QQE measures. By the time the November Monthly Economic report is published, the BoJ should have revised down its projection, and therefore, the gap between the government and the BoJ in their economic assessment will finally be closed.