Japan's industrial production unexpectedly rose a modest 1.4% on the month in October for the second straight gain (consensus -0.8%), driven by a rebound in the auto industry, but the outlook remains, underscoring the drag from stiff Trump tariffs on autos and metals and following a 2.6% rise in September, which was its first gain in three months.

The Ministry of Economy, Trade and Industry projected that output would slip back 2.6% in November before sliding a further 2.0% in December as the impact of trade rows becomes more apparent in the fourth quarter. METI maintained its long-held view that industrial output was"taking one step forward and one step back."

Takeaway: For a clear picture of how global trade and growth are impacting Japan's economy, policymakers will have to wait for November trade data due on Dec. 17 and industrial output on Dec. 26. Japanese export values posted the second straight rise in October, up 3.6% on year, as the European economy continues picking up and China is slowly crawling out of the doldrums while export volumes were down for third straight month (-1.2% y/y), hit by the protectionist U.S. trade policy.

Looking at the bright side, the government noted in its monthly economic report for November released this week that there are signs of a pickup in goods exports to the United States while export prices of Japanese automobiles for the U.S. market appear to have hit the bottom. Earlier, Japanese carmakers slashed the sales prices for U.S. customers in hopes of protecting their market share.

Details:
Japan Oct industrial output +1.4% m/m (Sept revised up to +2.6% from +2.2%); second straight rise; median forecast -0.8% (range: -1.3% to +0.6%)

Japan Oct industrial output unexpected m/m rise driven by a rebound in passenger cars and engines, as export data show resilience despite US tariffs

Japan Oct industrial output index level at 104.6 is nearly a 2-year high, strongest since 105.0 in Dec 2023

Japan Oct industrial output +1.5% y/y (Sept revised up to +3.8% from +3.4%), second straight rise; median forecast -0.5% (range: -1.2% to +0.7%)

Japan METI keeps view: industrial output taking one step forward and one step back

Japan METI forecast index: Nov industrial output -2.6% m/m (adjusted for upward bias), Dec -2.0%

Japan Oct industrial output: 10 out of 15 industries post gains, 5 are down

Japan’s industrial production is projected to decline for the first time in two months, falling 0.8 percent from the previous month after rising 2.6 percent in the prior month (revised up from +2.2 percent).

Exports to the United States, particularly automobiles, continue to weaken under the Trump tariffs, while shipments to China are also expected to fall, weighing on overall output.

A monthly survey by the Ministry of Economy, Trade and Industry released last month showed manufacturers expected output to drop 0.5 percent in October and extend the decline to 0.9 percent in November.

Industrial output is also expected to fall back by 0.5 percent on year after rising 3.8 percent on year in the prior month.

Industrial Production measures the physical output of the nation's factories, mines and utilities. Factories manufacture various products, and the industrial production indexes have been prepared as a comprehensive indicator of wide-ranging production activities for such products and are regarded as some of the most important among economic indexes.

Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more subdued growth that won't lead to inflationary pressures. By tracking economic data such as industrial production, investors will know what the economic backdrop is for these markets and their portfolios.

Industrial production provides key industry data for this export-dependent economy. The data are issued twice a month-a preliminary estimate at the end of the month for the preceding month and a revised estimate about two weeks later. All products, whether sold domestically or abroad, are included in the calculation of industrial production. Industrial production is highly sensitive to the business cycle and can often predict future changes in employment, earnings and income. For these reasons industrial production is considered a reliable leading indicator that conveys information about the overall health of the economy. This report has a big influence on market behavior. In any given month, one can see whether capital goods or consumer goods are growing more rapidly. Are manufacturers still producing construction supplies and other materials? This detailed report shows which sectors of the economy are growing and which are not.