MNI INSIGHT: BOJ Off'ls Discount Weak Consumption Index Data

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials don't believe the weak consumption

activity index results for September accurately represent the actual underlying

consumer spending pattern, arguing that private consumption remains resilient,

MNI understands. 

     BOJ officials had fully expected the September consumption activity index

to be weak due to bad weather during the month.

     The BOJ reported Wednesday that its Consumption Activity Index fell a real

0.3% on a seasonally adjusted basis in September, the second straight drop after

falling 0.9% in August. The index in the July-September period was down 0.6% on

quarter following gains of 0.9% in the second quarter and 0.8% in the first.

     BOJ officials expect private consumption to rise in the period ahead,

though not sharply given the slow growth in wages. 

     "Private consumption is expected to follow a moderate increasing trend,

supported by an increase in employee income and the wealth effects stemming from

the rise in stock prices, as well as replacement demand for durable goods," the

BOJ said in its latest Outlook Report released on Oct. 31. BOJ officials

continue to hold this view. 

     The BOJ's consumption indicator, which is calculated by combining various

sales and supply-side statistics of goods and services, is usually effective at

capturing short-term consumption trends and it has a close correlation to gross

domestic product figures.

     BOJ officials expect private consumption, which accounts for about 60% of

GDP, to be weak on quarter for the third quarter, posting the first drop in

seven quarters following a 0.8% gain in the second quarter. 

     BOJ officials expect the economy to continue expanding moderately in the

fourth quarter, with the focus on consumer prices respond. 

     Japan's gross domestic product for the July-September quarter is expected

by economists to post a modest 0.4% rise on quarter, or an annualized 1.6%, as a

rebound in net exports offsets a slump in consumer spending caused by bad

weather.

     The Cabinet Office will release preliminary third quarter GDP data at 0850

JST on Nov. 15 (2350 GMT on Nov. 14).

     The expected expansion in Q3 would be the seventh consecutive quarterly

gain. GDP surged 0.6% on quarter, or an annualized +2.5%, in April-June, led by

strong private consumption and public investment.

     The MNI survey median forecast shows economists expect net exports of goods

and services to have added 0.4 percentage point to the total domestic output in

the third quarter, after pushing down Q2 GDP growth by 0.3 percentage point. The

forecasts ranged from +0.3 to +0.6 point.  

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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