Japan's IP Advances in October

Japan's industrial output rose by 1% in October, beating expectations. Output in Japan cratered in early 2012; it has been gradually advancing since then. The year-over-year growth rate of 5.3% is the highest since May 2012.

Japan has still not had a full recovery from the financial crisis as it has been hit by the Tsunami and is still dealing with problems at its decommissioned nuclear facility in Fukushima. Japan's manufacturing is still better than 15% short of its pre-recession peak.

Transportation has the strongest growth rate over the past 12-months on a gain of 10.5%. But that is still part of lagging recovery. The transportation sector's output level is still some 22% below its past cycle peak.

Output for consumer goods and intermediate goods is expanding at a pace between 4% and 4.5%. Utilities output of gas and electricity is weaker, rising by just 2.1% over 12-months. The output of investment goods is up at a very strong 8.9% year-over-year.

Momentum paints a slightly brighter picture. Output is undergoing steady acceleration for consumer goods. Investment goods and electric and gas output show much stronger growth rates over 3-months and 6-mopnths compared to 12-months. Intermediate goods, however, show a steady deceleration in growth from 12-months to 3-months; over 3-months output is declining in this sector. Mining also shows deceleration with a negative growth rate of 21.4% at an annual rate over the last three months.

On balance Japan's situation is improving- it still has a long way to go. Growth rates in output are solid and over the last 12 months and on shorter horizons. Over the last two months, total industry and manufacturing have had positive and strong monthly rates of growth. Japan continues to make progress. With the improvement in the global environment, this improving trend should continue.