Has Japanese Industrial Production Bottomed?

The Japanese index of industrial production in manufacturing continued to fall sharply in February. The index with base 2005=100 was 68.8 down 9.5% from January and 27.8% below February, 2007. Manufacturing production is now at levels last seen in the late seventies and early eighties of the last century. The decline in the production index has followed quickly on the declines in the index of manufacturing shipments, but until the last two months, the index of inventories continued to rise, resulting in a rising index of inventory/sales ratio, as can be seem in the first chart. The index of the inventory/sales ratio rose in January and February, as the declines in shipments offset the declines in index of inventories.

The index of manufacturing inventories showed a decline of 2.1% in January from December and one of 4.2% in February from January. Although these reductions seem small in percentage terms, the 4.2% drop was the biggest drop since 1978 when the record keeping began. With production at historical lows and now historically large reductions in inventories, manufacturers are apparently are beginning to see a need to increase production. and are currently forecasting increases in the index of industrial production for manufacturing in March and April of 2.8% and 3.1% respectively. The second chart shows their expectations.