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MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan officials are concerned that China's economy
may fail to respond to Beijing's stimulus measures, in turn putting further
downward pressure on Japan's industrial production and exports and increasing
the chances the BOJ will need to consider additional easing measures, MNI
     The BOJ are pinning their hopes on a positive impact from China's economic
stimulus measures on Japan's exports and industrial production, and the latest
'Opinions' from the March 14/15 meeting maintained the baseline economic
recovery scenario.
     However, there is a growing understanding of the risks if China's recovery
is slower than expected, including the possibility that the BOJ will conduct
further easy policy, despite the concerns over building side-effects from
current policy.
     Japan's exports and industrial production are expected to remain weak in
both Q1 and Q2, with BOJ economists expecting a boost from a China pick-up in
the second half of 2019.
     But Japan's exposure to China and the greater Asian region leaves the
economy at risk if the Chinese economy is slow to respond to stimulus. According
to BOJ data, almost 55% of Japan's exports go to Asia -- 19.5% to China and a
combined 35.4% to Newly Industrializing Economies (NIEs) and Association of
Southeast Asian Nations (ASEAN).
     BOJ Governor Haruhiko Kuroda has previously stated an optimistic outlook
over Beijing's stimulus plans, but there is a growing view amongst Bank
officials that the impact of the measures will not produce the required effect,
given China still suffers from structural issues, including heavy debt loads at
firms and municipalities.
     These debt levels are a concern, with China's commercial banks cautious in
extending new loans, adding to their risk profile as their existing
non-performing loan risks grow. Local governments are in a similar position,
unwilling to increase their debt levels despite clearance from Beijing to up
bond issuance this year.
     Weakness in China - and Europe - pushed the BOJ to lower its assessment of
both exports and industrial production in the wake of weaker data, although
maintaining the overall economic assessment, saying "Japan's economy is
expanding moderately, with a virtuous cycle from income to spending operating."
     Officials expect domestic demand to remain solid, supporting the virtuous
cycle in the coming months while the global economy remains weak, but there is a
growing perception that slowing overseas demand will eventually hit at home.
     To add to the concerns from overseas, renewed volatility in financial
markets is also a concern, with slumping stocks likely to hit both corporate and
household sentiment, further dampening their spending.
     The Nikkei 225 stock index ended Monday's session down 3.01% at 20,977,
although early trade Tuesday saw some of those losses recouped.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
MNI London Bureau | +44 203-865-3812 |