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Ending QE Early Would Be Hawkish... Right?

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MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan officials found some comfort in the upwardly
revised Q4 GDP data, but concerns over the slowing global economy still weigh on
their first quarter outlook, MNI understands.
     The slowing China and eurozone economies, along with the dip in overseas
capital investment, are weighing on Japan's exports and industrial production,
BOJ officials admit, but they still think they need more data before abandoning
the view that Japan is still in recovery mode.
     Revised GDP data published Friday showed Japan's economy grew at a faster
pace than initially estimated in the October-December quarter, with business
investment stronger than initially seen. The economy rose 0.5% on quarter, or an
annualized +1.9%, thanks to stronger capital investment, for the first growth in
two quarters following a 0.6% q/q, or an annualized 2.4%, fall in Q3. Capital
investment, as widely expected, revised up to +2.7% on quarter from preliminary
estimate of +2.4%.
     BOJ officials interpret the upward revision of capital investment as
showing corporate spending remained solid through the period, but was somewhat
temporary as the economy bounced back from a string of natural disasters in Q3.
Officials also note that the rebound didn't fully cover the Q3 downturn.
     The slowdown of the global economy, driven initially by a slowing Chinese
economy and spreading into the euro area, is strengthening, clouding the outlook
for Japan's manufacturing base.
     BOJ officials expect both exports and production to remain weak in Q1, with
the focus firmly on how weak global demand weighs on capital investment, a
barometer to gauge the sustainability of the 'virtuous cycle' from profits to
     January industrial production in fell 3.7% on month in following a fall of
0.1% in December and the production for the first quarter is expected to fall
4.4% on quarter. The first month of the year is always seen as volatile due to
seasonal adjustments and the Lunar New Year holidays, but it makes it difficult
for BOJ economists to get a handle on the Q1 outlook.
     BOJ officials have been relatively upbeat on exports in recent months, with
their last assessment showing the nation's global share of world trade on a
rising trend, due in part to an increase in demand for IT-related goods and
capital goods, in which Japan has a comparative advantage."
     But following a sharp fall in the BOJ's real export index in January, down
5.3% on month, ongoing uncertainties over the global economy will have BOJ
officials challenging that view.
--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 |
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