re: ah so TOKYO (Dow Jones)--Japan's industrial production and...

re: ah so TOKYO (Dow Jones)--Japan's industrial production and construction orders grew
strongly in June from the previous month, data showed Monday, suggesting the
current recovery may become the longest economic expansion in the postwar
period.

The Ministry of Economy, Trade and Industry said Japanese industrial
production in June jumped an unexpected 1.9% from May on the back of increased
auto exports to North America and Europe and output of flat-panel display
manufacturing equipment.

It also upgraded its assessment of industrial output for the first time since
last December and said surveys show production is expected to sharply increase
in July and August.

Meanwhile, other government data showed that total construction orders
received by the nation's 50 leading contractors rose 3.5% on year to Y1.083
trillion in June and that June housing starts posted a 4.7% on-year increase to
114,331 units.

Analysts say the indicators suggest that the world's No. 2 economy is on
course to extend its run of consecutive growth - already 54 months in July - to
its longest stretch in the post-World War II era. Previously the so-called
Izanagi boom, named after a Shinto god, ran for 57 months in the late 1960s.

"Very, very strong," JPMorgan Securities chief economist Masaaki Kanno said
of the production increase.

"Now domestic demand is the driver and against the backdrop of still low
interest rates and the relatively high expected rate of return on investments,
(capital expenditures) growth will remain high or maybe accelerate," he added.

But such high growth prospects have caused some to speculate that the central
bank might tighten monetary policy again - sooner rather than later - on fears
of the economy overheating.

"We believe business activity, including overheating production activity,
raises the risk of an economic adjustment going forward, and that today's data
will strengthen BOJ's sense of concern," Barclays Capital said in a note to
clients.

Earlier this month, the central bank hiked rates for the first time in nearly
six years, raising the overnight call rate by 25 basis points to 0.25%.

Despite a strengthening economy, the Japanese government and many in the
ruling party are urging the BOJ to keep interest rates low for a while longer
to ensure the sustainability of the recovery and to ward off a reappearance of
deflation.

The production rise was much larger than expected by economists surveyed by
Dow Jones Newswires, who estimated on average that industrial production
increased 1.2% from the prior month after adjustment for seasonal factors. It
dropped 1.3% in May.

A METI official briefing reporters on the data said the production index of
105.7 was the highest on record. The previous high was April's 105.1.

For the April-June quarter, production rose 0.8% on month to 104.8, while
shipments increased 1.9% to 108.6. The official said both indexes were the
highest in the current 2000 base year.

The ministry said shipments climbed 0.7% on month, while inventories grew
0.5%. The inventory ratio therefore slipped 1.1% in that month.

July, Aug Output Survey Strong, But U.S., BOJ Concerns


Based on company surveys, the ministry now expects output to rise 2.2% in
July on increased manufacturing of electronics parts and devices, and then
climb 3.7% in August because of higher output of cars and electronics.

The output jump was a positive surprise for analysts. It bolstered Nikkei 225
futures and briefly lifted the yen against the dollar, while the bond markets
shrugged it off.

JPMorgan's Kanno noted that details show shipments of producer goods were
weak, while shipments of capital goods looked very strong. He said he had
expected the METI forecast to show a payback in August for bullish growth in
June and the expected July rise, but the ministry survey tipped a sharp August
increase.

Therefore, July-September output is likely to grow around 10% in annualized
terms, Kanno said.

Analysts also said they weren't very concerned about an information
technology inventory adjustment because domestic consumption is expected to be
firm on the back of a tighter labor market and higher wages. Moreover,
companies are more cautious after getting burned by the 2004 Summer Olympic
Games in Greece, which left them with stocks of unsold flat panel TVs and other
audio visual equipment.

To be sure, not all analysts are fully sanguine about the production outlook,
saying they need to watch the yen's possible impact on exports and corporate
earnings, the U.S. economy and Bank of Japan policy.

Lehman Brothers said in a report Monday that with U.S. economic expansion
expected to decelerate in the latter half of the year after sharply slowing in
the second quarter and with the yen starting to appreciate, overall export
growth will probably moderate later in 2006.

"Thus, the key for the medium-term prospect for growth is whether domestic
demand will be able to generate solid autonomous growth," it said.