May industrial production to weaken, due to weak real exports

Japan's industrial production data for May is expected on 28th June.

 The real exports (-4.9% mom) is very weak. As this year's Golden Week holidays (end-April to beginning of May) were longer than usual (owing to the calendar), many companies were off for a longer period, resulting in a temporary weakness in production and exports. Therefore, Societe Generale expects the May industrial production to be weak (-2.2% mom), after firm growth in April (+1.2% mom).

However, consumption in the US is recovering rapidly in Q2. As producers have been cautious regarding inventory investment in the past, the level of inventories is not a major problem. Both production and exports after June are likely to show firm strength. 

The production trend for 2015 will depend on how strongly Japanese exports can recover thanks to the US economic recovery. Assuming firm domestic demand on the back of an expansion in aggregate wages, we expect the production trend to continue to strengthen.

In addition, as the plan regarding inventories is gradually shifting from inventory adjustment to inventory investment, production is likely to strengthen ahead, says SocGen.