MNI INSIGHT: BOJ Concern Capex May Slow, Impact Price Momentum

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan sees the global spread of the coronavirus

as a growing risk to corporate capital investment, which has been a main driver

of Japan's moderate economic recovery, MNI understands.

     Slowing capex spending could halt the virtuous cycle from company profits

to consumption - which in turn will slow or stop momentum towards the BOJ's goal

of price stability.

     BOJ economists will await the March Tankan survey, set for release in early

April, but expect sharp downward revisions to spending plans as global risks

grow and corporate profits slow.

     --REVISIONS

     March capex plans are usually revised lower from the December reading, with

companies looking to roll over any surplus into the new fiscal year. However,

this month, BOJ officials see downward revisions to plans for the new year, to

levels below historical averages, as companies look to shore up their balance

sheets.

     The response period for the March Tankan survey is Feb. 25 to March 31, so

captures all of the virus driven downturn and market meltdown over the previous

4 weeks and the BOJ is prepared for a considerable worsening of business

sentiment from three months ago. However, they don't expect plans worsen too

aggressively, as experience suggests a time lag between market moves and

projected capex spending.

     But while the early trend signal from the March Tankan will be closely

watch at the BOJ, officials know it will be June before they get a better read

of corporate intentions -- when firms both have a better grip on where events

are globally and also they are into the new fiscal year.

     If the virus spread slows somewhat between now and June, the BOJ can await

the June Tankan before coming to judgement on capex spending. If there is little

improvement, it may well have to adjust its own assessment of the economy lower.

--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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