July industrial output down in Japan, up in South Korea

There is more evidence today to add to yesterday's that Japan's recovery is at risk of stalling.

Japanese industrial output fell 1.1 percent in July from June, more than markets had expected, but the government survey showed a pick-up was expected in the months ahead, suggesting Japan's economic recovery was gaining traction. Market forecasts had centred on a fall of 0.5 percent in July after a rise of 1.6 percent in June. Details showed the decline was led by sectors such as transportation equipment and general machinery, including machines to make flat panel displays.

However, the outlook remains optimistic.

But the report showed that manufacturers' output -- the core component of industrial production -- was expected to rise 2.3 percent in both August September, consistent with expectations that the economy was moving onto more solid ground...

Separate data on Wednesday also pointed to solid manufacturing activity in August. The NTC Research/Nomura/JMMA Purchasing Managers' Index (PMI) fell to 53.8 in August from 54.1 in July but the index remained above the 50 break-even line to mark an eighth straight month of expansion. The output component of the PMI hit its highest level in 13 months, which report compiler NTC Research said was "indicative of robust growth".

Despite yesterday's reported rise in the unemployment rate, Japan's Ministry of Health, Labor and Welfare today reported that wages rose 1.7 percent in July, the most in eight months and the fourth straight month of gains.

Yesterday, South Korea had reported an unexpected rise in industrial output.

South Korean industrial output unexpectedly rose in July for the third consecutive month, helped by improving domestic demand, data showed on Tuesday, but high oil prices cast a shadow over the outlook.

Factory output rose a seasonally adjusted 1.3 percent in July from June, National Statistical Office data showed, beating the median forecast in a Reuters poll for a 0.7 percent fall. Output in July was 7.0 percent higher than a year earlier, outpacing expectations for a 5.1 percent increase...

Central bank data supported the view that domestic demand was strengthening by showing that Korean retail purchases on credit rose 2.8 percent in the second quarter after a fall of 2.6 percent in the first quarter.

High oil prices, though, is a threat to the South Korean economy.

Economists said high oil prices would inevitably hurt consumer sentiment, while government moves to cool the real estate market also risked dampening spending if previous measures were anything to go by...

Higher oil import costs could contribute to South Korea's current account swinging into deficit in August for the first time in four months, a central bank official said. Increased spending by travellers abroad would also contribute to the shortfall, the official said.

In July, the current account surplus more than halved to $1.37 billion from $3.25 billion surplus a year before, the central bank said on Tuesday.

Brad Setser, though, thinks that China's current account surplus will continue to grow in the face of the oil shock.