- HSBC
A disaster, this is the only way how a report from the Ministry of Economy, Trade and Industry can be called. The industrial output, which is crucial for the world's third largest economy, posted its sharpest fall in over three years, highlighting the widening impact of April's tax hike. While impact on the USD/JPY currency pair was muted, mostly due to the strong resistance at 102.16, the data can have its footprint on the BoJ stance.
The overall drop for the April-June quarter was the first in six quarters in a row, with a 3.7% decline being the largest since the second quarter of 2011 that was provoked by earthquakes and tsunami. Shipments sank 1.9% in June, while inventories increased by as much, meaning Japanese companies were stockpiling. The manufacturing sector has cut back in response to weaker consumer spending as well as a failure of exports to improve even despite an 18% depreciation of the domestic currency over the last year. The recent ugly data points to a sharp downturn over the quarter, meaning it could wipe out much of the Japan's 6.7% growth in the first three months. The next GDP report is scheduled for August 13. While a second-quarter setback for economic output is widely expected, a massive contraction will be a blow to Shinzo Abe and his Abenomics, intensifying uncertainty surrounding future fiscal and monetary plans.
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