Rising Exports Fuel Rise in Japanese Industrial Production

Industrial production in Japan was reported today to have increased 2.6% in November to 88.3 (2005=100).  This was the ninth month in which production increased from the low of 69.5 reached in February of this year.   It is, however, still 5.2% below November, 2008 and 19.8% below the recent peak reached in February, 2008.  The increase has been fueled primarily by foreign demand.  Exports were up almost 5% in the month of November.  Domestic demand as represented by retail sales, on the other hand, increased by only 0.2% in November.  Retail sales have shown little growth over the past several years as can be seem in the first chart that shows industrial production, exports and retail sales.* 

The outlook for increased foreign demand remains favorable in spite of the high yen. In particular, demand from China, Japan's largest export customer, is rising together with demand from other Asian countries.  The outlook for domestic demand is more problematic.  Also released today was the year over year change in cash earnings in industries employing 30 or more persons. This series, shown in the second chart, is a good indicator of general   employment conditions and hence an important indicator of domestic demand.  Cash earnings in November were 4.5% below a year ago.  This is an improvement over October's 9.5% shortfall and the -23.4% of March, 2009 but it is unlikely to mean a significant increase in domestic demand in the immediate future.  *In the first chart the data for industrial production and retail sales are seasonally adjusted and indexed to a 2005 base.  In order to have a comparable series for exports, we used the series for exports seasonally adjusted by the Ministry of Finance (VEATTLA@JAPAN) and indexed these data to a 2005 base using the specialized function in DLX.