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Japan's industrial production growth is being driven by temporary forces and could fade in due course, a report released by BNP Paribas said Wednesday.
Japan recently released its industrial production numbers for August, with output rising 1.8% sequentially - the sixth straight monthly increase. But despite the rising trend in industrial activity, the firm foresees a bleak outlook for the manufacturing sector.
The French firm said that the recovery in the industrial sector was being driven by two temporary factors: diminishing destocking and government stimulus plans, and expressed uncertainty regarding the outlook for the sector when the effects of these temporary factors wore off. The firm noted that a major problem for Japanese industries is capacity overhang. Moreover, the appreciation of the yen harms the international price competitiveness of Japanese producers.
The firm also expects the Bank of Japan to withdraw some of its temporary measures such as the buying of corporate debt, since persisting with these measures for a long time might distort the financial market.
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