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Economy in Brief

Sharp Rise in Japanese Industrial Production for October; Capital Goods Especially Strong
by Carol Stone November 29, 2006

Industrial production in Japan surged in October by 1.6%, more than reversing a 0.7% setback in September. Analysts polled by major press services had looked for September's decline to be repeated in October by 0.4% or 0.5%, so the result was a major surprise.

Gains were widespread, particularly among durable goods industries. Metals and machinery of various kinds all had sizable increases, as suggested by the selection in the table below. General machinery halted a three-month decline with a substantial 6.5% jump which brought it 10.8% above a year ago. Semiconductors and other electronics rose 2.8% in October, putting the volume of those industries' output a whopping 18.9% above October 2005.

Clearly, not all industries participated, with petroleum and related sectors showing some weakness. Petroleum refining and processing itself has fallen markedly, down 3.6% in October and 8.0% on the year-ago amount. Chemicals (excluding drugs) have been off modestly three months running, carrying them down 0.2% from a year ago. Textiles and ceramic products were also down. Plastics, paper, rubber and furniture all were little changed.

Nonetheless, the outsized increases in some key industries are striking. Analysts have been divided over whether the Japanese economy was ready to bear higher interest rates, and these results give further credibility to the Bank of Japan's general stance in that direction. Notably in this report, the main push was in capital goods; excluding transportation equipment, output in those industries jumped 10.1% in the month. Production in these sectors is by nature volatile, so long-range conclusions can't be drawn from the one-month move, but it points toward a firm economy, not a soft one, as had been hinted in other recent data.

JAPAN, Seas Adj* Oct 2006 Sept 2006 Aug 2006 Year Ago 2005 2004 2003
Headline Series, 2000=100 107.8 106.1 106.8 101.6 101.3 100.2 95.0
  % Change 1.6 -0.7 1.8 7.4 1.1 5.5 3.2
General Machinery 6.5 -1.6 -0.2 10.8 5.2 16.7 7.2
Electronic Parts, Etc 2.8 -0.5 5.0 18.9 0.8 13.3 17.8
Chemicals (ex Drugs) -0.4 -0.9 -1.4 -0.2 0.6 1.4 1.6
Petroleum & Products -3.6 -1.5 0.9 -8.0 1.2 -1.1 1.8
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