Production fell a seasonally adjusted 0.3 percent from June, according to the median estimate of 42 economists surveyed by Bloomberg News. The Ministry of Economy, Trade and Industry will release the report at 8:50 a.m. on Aug. 31.
Riken Corp., Japan's largest maker of piston rings, shut a factory for a week following the July 16 quake, cutting off supplies for automakers and forcing them to temporarily close plants. Rather that dwell on July's output decline, the Bank of Japan is expected to focus on whether the U.S. housing-market crisis will affect demand for Japanese goods in coming months before deciding to raise interest rates.
``The slip in production will be modest and won't be looked at that closely,'' said Naoki Iizuka, senior economist at Mizuho Securities Co. in Tokyo. ``The BOJ needs to confirm that the subprime issue isn't hurting demand before it can raise interest rates.''
Separate reports on the same day may show consumer prices fell for a sixth month in July, unemployment stayed at a nine- year low and household spending gained for a seventh month.
Global stocks plummeted and the yen surged this month after losses on U.S. subprime mortgages drained liquidity from markets. Central banks in the U.S., Europe and Japan pumped more than $350 billion in the banking system and the Federal Reserve cut the rate at which it lends to banks to prevent further turmoil.
Subprime Effect
Bank of Japan Governor Toshihiko Fukui and his policy board voted 8-1 to keep the benchmark overnight lending rate unchanged at 0.5 percent last week. The bank needs to watch how the subprime collapse might affect the U.S. and global economies, Fukui told reporters after the decision.
Investors are scaling back expectations for a September rate increase. At 8:38 a.m. today they saw a 30 percent chance of a move at the Sept. 18-19 meeting, down from 36 percent at the end of last week, according to Credit Suisse Group calculations based on interest payments.
Riken had to halt production last month after the magnitude 6.8 quake in Niigata prefecture damaged its engine-parts plants. Honda, Japan's second-largest carmaker, cut output 11 percent, the biggest drop in two years. Bigger rival Toyota pared manufacturing 8.4 percent, also the largest decline since 2005, the companies said on Aug. 28.
Automakers pledged to increase production this month to make up for the cuts in July, though slower U.S. consumer spending may force them to scale back those plans.
U.S. Demand
``We're already seeing that U.S. demand is stalling,'' said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. ``Exports are going to take a hit if weaker consumer spending translates into poor auto sales and demand in Japan isn't going to be strong enough to offset that.''
Exports, which drove more than a third of Japan's growth last year, are already showing signs of cooling. The trade surplus narrowed for the first time in six months in July as overseas demand for automobiles slowed.
Shipments abroad were a drag on economic growth in the second quarter after leading the expansion in the first three months of 2007. The economy grew at an annual 0.5 percent in the April-June period, slowing from 3.2 percent in the first quarter.
Meanwhile, consumer prices excluding fresh food fell 0.1 percent in July from a year earlier, a sixth monthly drop, according to the median estimate of 40 economists.
An increase in the tobacco tax in July 2006 offset the thrust from recent gains in gasoline prices, said Takuji Aida, chief economist at Barclays Capital in Tokyo.
``If gasoline prices stay around current levels, core prices will probably turn positive in the fourth quarter,'' Aida said. ``We still see a chance the Bank of Japan will hike the key rate in September or October.''
Fukui repeated on Aug. 23 his argument that consumer prices will resume rising over the long term as the economy expands.
The following table shows forecasts for the percentage changes in July factory production from the previous month and a year earlier.
