MNI INSIGHT:Weak Q2 GDP Would Reinforce BOJ Easy Policy Stance

Lingering supply-chain disruptions and dour consumer spending as energy and food costs bite amid weak wages will keep Bank of Japan officials focused on easy policy as an expected second quarter rebound could be tepid, MNI understands.

A rebound from a first quarter contraction is still expected, MNI understands, but BOJ officials are wary that improving the output gap is already delayed and the trade strains from China's lockdowns, even with Shanghai possibly easing curbs in June, will still flow through to May and possibly June data, See: MNI: Govt Official: Japan Q2 GDP Hit By Slowing China Economy.

In the near-term April trade data due out on Thursday will provide a guide and the BOJ has some time to mull the economic outlook and consumer and company trends seen during the May Golden Week holidays as the board's next meeting is in June, with no meeting this month.

High frequency data showed that private consumption was strong in early May, but official data is not available until late this month.

At the end April meeting, the BOJ made it clear that despite a weak yen and pressure on the 10-year Japanese Government Bond's minus/plus 0.25% yield curve control target, easy policy would remain for now. However, there have been some calls for tweaks or a broader review of policy settings, See: MNI INTERVIEW: BOJ Should Review 2% Target-Ex Senior Official.

AUTO SECTOR A GUIDE

Japan's auto exports have been hit by supply-chain gaps from China and production after March has likely dropped on a continued shortage of semiconductors, which cascades through the manufacturing sector.

Earlier in May, flagship automaker Toyota Motor warned in its latest earnings of "unprecedented" surges in material costs, affected by a sharply weaker yen on the import side, even though the currency's drop has also worked to boost export earnings for many of Japan's importers.

For the second quarter a sharp rebound in automobile production and exports is unlikely, and BOJ officials are worried about the impact of a worsening terms of trade. Still, the economy is likely to avoid a recession as Covid-19 restrictions are rolled back and limited tourism could start this summer.