MNI INSIGHT: BOJ Concern Virus May Trigger Capex Downgrade

--No Immediate Impact Seen On BOJ Policy If Investment Plans Slow

By Hiroshi Inoue

     The growing coronavirus threat could hit global growth and the Bank of

Japan is concerned it will lead to slowing exports that, in turn, will hit

corporate investment intentions, leading to a downgrade of capex spending plans

in the March Tankan survey, MNI understands.

     The concern is spending plans could dip below the historical average, as

the coronavirus outbreak hits corporate sentiment and lead to lower investment

plans.

     The BOJ was encouraged by how well capex spending plans held up in the

December Tankan survey, helping underpin the domestic recovery, but now worry

that a downward revision in March would hint at an end of the pick-up that

followed the autumn's natural disaster-led slowdown in production.

     March will also include initial spending plans for fiscal 2020, giving a

first guide to corporate sentiment for the coming 12 months and will reflect

current order levels and BOJ officials hope there are clear signs of an ongoing

recovery.

     --HANDS TIED

     However, March plans are usually heavily revised in the June survey, as

many companies don't reveal their full plans until the current fiscal year ends

on Mar. 31. And the wait for the revised data could give the BOJ the opportunity

to hold fire on fresh policy moves as a snap reaction to the March data,

although its vigilance will be increased if their is any threat to the much-eyed

virtuous cycle.

     Core machinery orders, which exclude volatile orders from power generation

equipment and ships, rose 18.0% on month in November, the first rise in five

months after a 6.0% decline in October. It was the largest rise since the

current measure was introduced in 2005, although it was temporary large-scale

orders, such as railroad cars.

     One upside for the BOJ from a slowdown in capex could help ease the current

tightness in the labour market., which would help sustain the positive output

gap -- a key factor underpinning momentum toward achieving the Bank's price

stability target.

--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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