Surprise drop in Japan production

Japanese manufacturers remain upbeat

Japanese industrial output fell by more than expected in July, official figures have shown, but manufacturers remain confident it will rebound.

Official figures showed that production declined by 1.1% in July compared with June. Analysts had been expecting a fall of only 0.5%.

The bigger drop was put down to the effect of higher global oil prices.

Yet in a separate government survey, firms forecast production growth of 2.3% in both August and September.

Oil impact

"Many manufacturers here have turned cautious or they took a wait-and-see stance during the month as spikes in crude oil prices have raised their costs for basic materials," said Akio Yoshino, senior economist at Societe Generale Asset Management.

Mr Yoshino added that while Japan can afford to absorb oil prices at current levels, he feared that a number of manufacturers would be affected if crude costs kept rising.

Other analysts chose to focus on manufacturers' upbeat forecast for August and September.

"The industrial production data is pointing towards an output recovery, other quantitative indicators are suggesting there should be a recovery, and the companies are saying that there is a recovery," said Richard Jerram, chief economist at Macquarie Securities in Japan.