Japanese Industrial Production and Domestic Trade up but BoJ Holds Interest Rate Steady

The ups and downs in the Japanese economy continue. Today's data for August are coming in on the up side. The monthly increase in industrial production was 3.52% in August after a decline of 0.4% in July. Comparable figures for retail sales were 3.9% and -2.5% and for wholesale trade, 3.8% and 3.8%. The month to month changes in industrial production, retail and wholesale trade shown in the first chart illustrate the up and down path these series followed over the past five years.

The monthly increases in industrial production and wholesale trade have been greater than the declines, with the result that these series show positive trends. The monthly increases in retail sales, on the other hand, have barely offset the decreases with the result that the retail trade data are more or less trend less. The second chart, shows the indexes of industrial production, retail and wholesale trade. (We have changed the base of the industrial production index from 2000 to 2005 to be comparable with the other series.)

The continued weakness in the consumer sector may have been a factor in the decision of the Bank of Japan to hold its benchmark interest rates at 0.5% this Monday. But probably, and more importantly, is the uncertainty caused by the continued negative adjustments taking place in the U. S. housing market as a result of its sub prime mortgage problem.