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MNI (London)
--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.
     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.
     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:
--MNI London Bureau; tel: +44 203-586-2225; email:
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