Japan's IP Rebounds

Japan's industrial production gained 2.7% in June after an 8.9% fall in May and a bigger drop in April. While the various growth rates over different tenors (see Chart) are slowing over more recent horizons, there is no reversal in the sense that three-month growth rates are showing improved growth compared to six months. Sequential growth rates for Japan are still losing momentum despite this month's gain. The three-month IP growth rate is weaker than the six-month IP pace which is weaker than the 12-month pace. That is true for manufacturing, textiles, transportation goods, consumer goods, intermediate goods, and (barely) investment goods.

In June, there are increases in all the sectors: consumer goods, intermediate goods, and investment goods. And while this is an increase across the board for the various manufacturing sectors, it is only a one-month gain. It may represent the toe-hold for sustained growth. But it is too soon to tell.

The industrial output story is told the same from the PMI data. Japan's manufacturing PMI has been stuck at the virtually the same diffusion value from April to May to June (41.9, 38.4 and 40.1, respectively). The diffusion data continue to see manufacturing output as very weak and contracting all through this period. The diffusion data do not flag an increase in output for June.

Japan continues to be an enigma with its major trade connections dug into China and the United States. China's early rebound is not helping Japan much and Japan so far is showing more industrial weakness than even the U.S. Japan is having some late issues with the virus after having run a low rate of infection overall. Japan's economy watchers index shows more of a profile like that of IP. It is very weak in April and May then recovers in June, but like the PMI report it also continues to point to ongoing declines in activity and no growth in June.

The virus continues to stalk the global economy. And there seems to be a lack of progress in understanding what the virus is and how it progresses. After all this time, there are no new approaches to it and for the most part only the most simple and old fashioned solutions are in vogue: wear a mask, wash your hands and social distance. In an age of technology after battling this virus globally for seven months, there is not much progress in understanding how to handle it. There is some progress in treatment. But the hope for a cure, for a vaccine, is still moving though it's inexorable timeline.