Hot on the heels of last week's dismal Japanese data [6], tonight's Industrial Production data missed rather dramatically as once again the hockey-stick'ers of hope rebound from last month's post-tax-hike plunge did not appear. USDJPY is still fading (4th day in a row), as Goldman concludes rather ominously (having folded like a lawn-chair on their J-Curve exuberance), the post-tax-hike correction is larger than the government and the market anticipated, and in view of our outlook for a slump in real wages and a resultant delayed recovery in domestic demand, we look to external demand to drive economic growth in FY2014. However, we highlight risk factors in the form of protracted weakness in China and other Asian economies and a decline in corporate Japan’s structural export capacity. Sadly for the hopers, hard data continues to miss both the production survey forecast and consensus.
As Goldman notes,
May production turns up, but short of consensus: Industrial production increased 0.5% mom in May (April: -2.8%), in line with our forecast but short of consensus (+0.9%) and well below the production outlook (+1.7%) announced together with last month’s data release. The upturn in production was widely anticipated given the sharp decline in April on the dropout of rush demand ahead of the consumption tax hike. However, the output trend is weak mainly because of sluggish export production, and the headline figure continues to miss both the production survey forecast and consensus. The government maintained its assessment of industrial production as “appears to be flat.”
[7]
Among the demand components, production of consumer durables picked up to some extent with 1.7% mom growth in May, having fallen 4.0% in April. Production of capital goods fell again in May, by 2.3%, while production of construction goods shrank 4.6% in May, versus 1.5% growth in April. By industry, output rose in the transport equipment sector (May: +1.9% mom) and the machinery sector (+1.9%), but decreased in chemicals (-4.5%) and information/communications equipment (-9.3%).
[8]
Output growth projected for Jun-Jul, but we still see high downside risk: The production outlook for Jun-Jul, announced together with the May data, calls for a small increase in output over the two months, with a 0.7% mom decline in June and 1.5% growth in July. However, we continue to see high downside risk due to (1) continued sluggishness in export volumes, (2) a slower-than-expected pace of recovery in consumption-related indicators after the April tax hike, and (3) many recent cases where production has undershot the survey forecast.
Post-tax-hike correction may be slightly exceeding expectations: On the whole we believe the post-tax-hike correction is larger than the government and the market anticipated, but more or less in line with our expectations. In view of our outlook for a slump in real wages and a resultant delayed recovery in domestic demand, we look to external demand to drive economic growth in FY2014. However, we highlight risk factors in the form of protracted weakness in China and other Asian economies and a decline in corporate Japan’s structural export capacity.
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USDJPY is not happy... and carry traders begin to lose faith...
[9]
As we noted previously, Abe's actions are nothing but a mirage [10]:
Abe’s arrows have been praised in the media by the economically ignorant, the politically motivated, and those who believe prosperity is parceled out by some all powerful shaman. However, the arrows, seen in the harsh light of reality, turn out to be counterfeiting schemes, “investing” in money losing ventures, taking money from the productive, and squabbling with the neighbors. These counterproductive political actions won’t ever result in a stronger economy and have instead left the Japanese people with a crushing debt and tax burden. Don’t get taken in by the hogwash you read in mainstream media propaganda pieces. Abe’s policies are complete and utter failures.
It appears Goldman is joining the choir (along with BofAML). [11]
And remember - inflation is at a 20-30 year high (depending on how one measures it) so don't be expecting moar QQE
