Japan August factory output falls 1.7% against forecast rise, retail sales slow

The industrial production miss and the softer retail print complicate the case for the Bank of Japan to move again quickly, and traders will weigh them against the strength implied by manufacturers' own projections for September and October. A former BoJ executive director has put the chance of an October hike at around 20% to 30%, so soft data could nudge that view lower, although the bank's shift toward preventing an inflation overshoot argues against reading too much into one month. The yen is the natural place for any repricing to show up, with hawkish BoJ expectations having been part of the recent backdrop. The next tests are September data and the Tankan business survey, which will show whether August was a blip. - Japan's August data missed on both output and retail sales, but manufacturers' upbeat projections for September and October leave the underlying picture unresolved. Summary: Japan's August industrial output fell 1.7% m/m (forecast +1.7%, prior revised to -0.2%), and rose 3.4% y/y, down from a prior 3.9%. Retail sales fell 1.2% m/m after a 2.4% rise, and grew 2.7% y/y against a forecast of 3.3% and a prior of 3.7%. Manufacturers surveyed by METI expect output to increase 3.2% in September and 3.1% in October, a sharp reversal from the earlier September forecast of a 4.2% fall. The August output fall compares with METI survey projections in July for a 6.4% rise for the month. The BoJ raised its policy rate to 1.25% in September, the highest since 1995, and a former BoJ executive director sees a 20% to 30% chance of a further hike in October. Retail sales also softened. Sales fell 1.2% on the month, reversing much of the 2.4% jump recorded in July, when consumer spending had beaten expectations. On an annual basis, retail sales grew 2.7%, below the 3.3% forecast and slower than the 3.7% prior reading, which was itself revised from an initial figure of around 4%. The manufacturers' outlook was more upbeat. In the survey by the Ministry of Economy, Trad