MNI INSIGHT: BOJ Await Tankan, Q1 Outlook Before More Easing

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan held back on additional easing at last

week's policy meeting as insurance against the economy slowing further, leaving

some ammunition at hand in case momentum toward achieving its price stability

target is lost, MNI understands.

     How both business sentiment and investment intentions hold up in the

December Tankan survey will be closely eyed by the bank, with growing concerns

they may dip below historical averages.

     Few companies downgraded their capex plans in Q3 according to the September

Tankan survey, with BOJ staff noting revisions normally come in H2 and the

slowdown in global growth was set to hamper future investment plans.

     --CAPEX PLANS

     A major concern is that capex plans are revised significantly lower,

increasing the risk that the virtuous cycle stalls and the price momentum will

be lost.

     In the December 2018 survey, major manufacturers revised their capex plans

higher by 15.6%, down from +17.5% seen in that September's survey and broadly in

line with historical average revisions.

     This year, the September survey showed capital investment plans up 11.8%, a

rare downward revision from the June survey, with the BOJ pointing to technical

reasons.

     Despite the weakness in manufacturing investment, capex plans to deal with

the increasing labor shortages and help boost efficiency levels across the

service sector are seen by the BOJ as a last bastion against the economy

deviating from the virtuous cycle.

     The BOJ expects the economy to contract in Q4, weighed by weaker exports

and industrial production, along with the post-tax hike drop in consumer

spending, but will eye carefully just how big a contraction there is and whether

it is temporary with a bounce back in Q1 or not.

     The big picture for both Q4 and an early look at Q1 will be seen in hard

data ahead of the GDP report due in mid-Feb

     The central bank sees exports remaining weak for now, but picking up some

time next year. However, should exports fall significantly, companies will lose

confidence, further weakening sentiment at both the corporate and consumer

level.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

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