Japan Govt: Modest Econ Pickup Intact, Imports Dip Due Phones

     TOKYO (MNI) - The Japanese government on Wednesday left its economic

assessment for September unchanged for the fourth straight month, repeating that

the domestic economy remains "in a moderate recovery," while noting imports are

showing temporary weakness.

     The government also left unchanged its assessment of consumption, capital

investment, exports and industrial production.

     In June, the government revised up its overall economic assessment for the

first time in six months.

     Looking ahead, the government maintained its outlook that the economy will

continue "recovering moderately," backed by improvement of labor and income

conditions and the effects of fiscal spending.

     It also repeated the risks to its outlook, citing uncertainty in overseas

economies and the effects of fluctuations in financial and capital markets.

     The government downgraded its assessment of imports for the first time in

26 months, saying "the pickup (in imports) is marking time." Last month it said

imports showed signs of a pickup.

     Import volumes fell a seasonally adjusted 1.4% on month in September, the

third straight month-on-month drop, hit by weak Chinese shipments of

smartphones, notably iPhones.

     "The level of imports of smartphones made in China is still high but it

started to slow down in May and showed weakness during the summer months before

new models were released," said Hideyuki Ibaragi, director of macro-economic

analysis at the Cabinet Office.

     "The initial demand for new models has been slow as the iPhone 8 and the

iPhone X are being released at different timings (in September and November). We

will probably see a pickup in imports of smartphones in November when the iPhone

X hits the market."

     The weaker imports do not necessarily suggest domestic demand is declining

to the degree that it would undermine the current modest economic recovery,

Ibaragi said.

     Import volumes fell 1.4% on quarter in July-September after rising 2.3% in

April-June, when Japan's gross domestic product rose 0.6% on quarter, or an

annualized 2.5%, led by strong private consumption. 

     Economists expect a pullback in consumption in Q3 but forecast Japan's

economy will continue growing around 1% at an annualized pace, just above its

growth potential. 

     "Domestic demand slowed in Q3, partly due to weather factors (a large

number of rainy days) after nice weather supported consumer spending in Q2. I

wouldn't say the import decline is not at all due to slower domestic demand but

the biggest reason is the drop in smartphone shipments from China," Ibaragi

said.

     The average economist forecast for Q3 GDP growth is an annualized 1.34%

rise, down from the 2.5% expansion in Q2, according to the latest monthly ESP

Forecast Survey of 41 economists by the Japan Center for Economic Research. The

survey showed economists projected a gradual slowdown in the GDP growth rate

toward 1% from Q3 onward.

     The government repeated that private consumption is "picking up moderately"

and that business investment is "picking up."

     Combined same-store department store sales rose 4.4% on year in September,

posting the second straight year-on-year rise after rising 2.9% in August. Lower

temperatures pushed up demand for autumn and winter clothing while the weaker

yen and continued gains in stock markets supported purchases of high-end goods

and spending by visitors from overseas.

     The Cabinet Office's Private Consumption Integrated Estimates index, which

is based on both supply- and demand-side data, posted the first month-on-month

rise in four months in August, up 0.4% after falling a revised 0.1% in July. The

index marked the sixth straight quarterly increase in April-June, up 0.8% on the

quarter after rising 0.4% in January-March.

     The Economy Watchers' sentiment index for Japan's current economic climate

rose to a nine-month high of 51.3 in September after being unchanged at 49.7 in

August. Lower temperatures boosted demand for autumn clothing and the lingering

effect of new models supported automobile sales.

     The Watchers' outlook index showed sentiment regarding the next two to

three months marked the first month-on-month drop in two months on a seasonally

adjusted basis, slipping to 51.0 in September from 51.1 in August, due to the

uncertainty created by Japan's snap election and the lingering North Korean

nuclear arms threat.

     On the other hand, the Bank of Japan's quarterly Tankan survey for

September showed that the index for sentiment among major manufacturers rose to

a 10-year high of +22 in September from +17 in June, coming in stronger than

expected.

     The Tankan also showed that capital investment plans by major firms were

revised down to +7.7% in September from +8.0% in June. But this does not worry

BOJ officials too much, as the pace of increase in planned capital investment is

still above the historical average. Capex plans by smaller firms were revised up

to -14.1% from -20.6% in June.

     Japan's core private-sector machinery orders, a leading indicator of

business investment, rose 3.4% on month in August to Y882.4 billion, the highest

level since July 2016.

     The government also left unchanged its assessment of exports and industrial

production, the key drivers for current modest economic growth, saying they are

both "pickup up."

     Export volumes fell a seasonally adjusted 3.0% on month in September, the

first drop in two months after surging 3.8% in August.

     But in July-September, export volumes rebounded 1.6% on quarter after

falling 1.0% in June, indicating external demand supported economic growth in Q3

after making a negative contribution to the Q2 GDP.

     Industrial production posted the first month-on-month rise in two months in

August, rising a seasonally adjusted 2.0%. The government forecast that factory

output will fall 1.9% on month in September (revised up from -3.1% projected

earlier) and rise 3.5% in October.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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