MNI INSIGHT: BOJ Mulls Japan Output, Exports Outlook Cut

--Despite Global Slowdown, Will Leave Easy Policy Unchanged

--Growing Concerns Over EZ Slowdown, China Stimulus A Plus

By Hiroshi Inoue

     TOKYO (MNI) - With slowing global growth and a weaker-than-expected

eurozone economy, the Bank of Japan will keep its easy policy unchanged on March

15, but consider changing the language it uses in assessing Japan's overall

exports and industrial production, MNI understands 

     As slowing growth elsewhere starts to weigh on both domestic production and

the export sector, warning lights are flashing for BOJ officials over whether or

not they can maintain the view that Japan's economy will continue expanding

moderately with the much-watched 'virtuous cycle' from profits to spending still

in place.

     However, it is unlikely the BOJ will abandon its baseline economic recovery

scenario at the March meeting.

     When the BOJ traditionally refers to levels, it reflects bank concerns

about a weak trend, a person familiar with BOJ thinking said, adding that the

BOJ will not drop virtuous cycle scenario easily as it is the centrepiece of the

BOJ's economic assessment.

     --WEAKER OUTPUT, EXPORTS

     January industrial production fell 3.7% on month, following a fall of 0.1%

in December, with first quarter output expected to fall 4.4% q/q, although some

of the January weakness was due to a partial shutdown at auto-maker Subaru.

     Japan's real export index calculated by the BOJ based on the Ministry of

Finance trade data fell 5.3% on month in January for the first drop in two

months, give back all and more of December's modest uptick.

     The BOJ was prepared for sluggish January data but is treating the numbers

with some caution due to the influence of the early February China Lunar New

Year celebrations. However, the significant weakness in the eurozone is a cause

for concern.

     Officials will now look to study the quarter-on-quarter changes, looking

for the underlying trend and if there is a return to a moderate recovery path.

     --CHINA STIMULUS

     Although concern is growing over the eurozone slowdown, the BOJ is more

upbeat about China, encouraged by Beijing's stimulus measures, which will

prevent its economy from worsening.

     BOJ officials cannot judge how or when the benefits of stimulus will kick

in, but any boost from China would have a positive impact on other Asian

countries and be supportive of Japan's exports and industrial production.

     The U.S., supported by strong domestic demand, remains a stabilizing

influence for Japan's economy -- and global financial markets. With stocks

steadying after a volatile period around the turn of the year, the BOJ sees a

flow through to an uptick in sentiment for Japanese businesses and consumers.

     Despite the uptick in confidence in global financial markets, the BOJ will

remain alert to a return of risk-off sentiment, particularly if it feeds through

into a stronger yen.

     Domestic output has slowed, but capital investment remains solid and BOJ

economists are eyeing fiscal 2019 plans as the barometer to gauge the

sustainability of the virtuous cycle.

     Those officials don't see the drop in non-financial current profits as a

factor that will impact corporate capital investment, as actual profitability

remains high.

--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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