MNI INSIGHT: BOJ Capex Concern Triggered By Slowing Auto Sales

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan is increasingly concerned that the global

slowdown in demand for autos could have a dual impact on the domestic economy,

hitting both sales and capital investment for research and development in the

motor industry, MNI understands.

     Bank officials expect R&D capital investment across the auto sector to

slow, which will weigh on overall capex spending and threaten the BOJ's outlook

for the economy to recover as investment spending helps exports recover and

offsets weak household spending.

     Capital investment on R&D in the automobile industry accounts for about 40%

of total research spending, according to the central bank and any significant

slowdown would undermine the sustainability of the overall capital investment,

BOJ officials worry.

     The BOJ had judged weak auto sales in Q4 were due mainly to supply-side

issues and they expect demand to recover in H1 2020. But there are growing

concerns that sales will not recover as quickly as hoped and that will see firms

delay capex spending plans.

     --WEAK GLOBAL DEMAND

     The BOJ sees sluggish demand for autos as a global problem and sees a

number of issues; slower demand for company auto fleets on weak capital

investment spending; a tough auto loan environment across the Indian

sub-continent; emissions controls in Europe and China, particularly related to

diesel engines.

     There is a hope that a pick-up in the global economy will help the first

two factors on the list, particularly corporate demand. But emissions is likely

to be a more ingrained structural issue that will be a drag on demand for a

while.

     Weak global auto sales will likely be a drag on any Japanese exports

recovery led by a pick-up in demand for IT-related goods. That will feed through

to the domestic economy, with the auto and transport sector accounting for

around 20% of total production.

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

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

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