For one thing, the plunge in February output was still not enough to offset the 3.9% jump in January’s result, and for another thing, industrial output has not always sent reliable signals about the overall direction of the economy.
As for the production forecasts included with the data, manufacturers now expect a 0.9% gain for March industrial output . For April, a 0.6% drop. Of course, these forecasts can be wildly off the mark: The February forecast had called for 1.3% gain last month.
Credit Agricole economist Yoshiro Sato says that the long-awaited hike in the consumption tax should have boosted the results as people and companies alike front-loaded their demand ahead of the increase. The fact that output dropped sharply instead suggests “heavy snowfall in February had a strong negative impact on production.”
Meanwhile, the up-0.9%-in-March-down-0.6%-in-April prediction suggests “that the impact of kickback decline in production from front-loaded increase in demand will be only modest,” according to Sato.
As for that Markit PMI data mentioned above, it showed a drop to 53.9 from 55.5 last month, though still holding about the 50 level that separates growth from expansion.
But as with the survey from the government data, the PMI “has tended to overpredict the speed of expansion in output in recent months,” according to Thieliant of Captial Economics.
So what are we to believe? If we look to the market for our cue, then the data were no big deal: The Nikkei Average opened 1% higher minutes after the data, though it has since come off its highs to trade with a 0.5% gain.
Really, the bigger data point of the week for Japan will likely be tomorrow’s Bank of Japan quarterly tankan survey of business sentiment. The closely watched survey could give us a sharper picture of how bad Japanese executives think the hit for the consumption-tax hike will be.