MNI INSIGHT: BOJ Pins Hopes On Q2 As Real Export Index Falls

By Hiroshi Inoue

     TOKYO (MNI) - There were no surprises for the Bank of Japan in the weaker

export data published this week, as the slowing China economy weighed in the

first quarter of the year, but MNI understands officials are now fixed on

whether the nascent signs of a recovery for the Chinese economy boost overseas

sales for Japanese manufacturers in Q2.

     The BOJ believes exports will likely follow a moderate upward trend with

the pick-up in overseas demand for capital goods expected to resume, supported

by the recovery in corporate fixed investment.

     --REAL EXPORTS INDEX LOWER

     The BOJ's real export index, calculated using Ministry of Finance trade

data, fell 1.8% q/q in the Jan-Mar period after a revised 0.5% gain in Q4. In

March, the Index fell 1.4% after a revised 3.6% gain in Feb.

     The BOJ revised the past data due to seasonal adjustments but, the BOJ

views, the underlying trend hasn't changed, as its in line with the March

assessment that "Exports have shown some weakness recently".

     Before the weaker data seen in Q1, the central bank had viewed exports as

being on an increasing trend.

     Overall, Japan's exports - a main driver for the economy -- fell 2.4% on

year in March. Although slightly better that the forecast, the decline

accelerated from February's 1.2% decline. Exports to China, which account for

almost a fifth of the total, declined 9.4% in March, more than reversing a 5.6%

gain in February.

     The weakness in exports to China in March surprised some, given the

relatively strong Chinese Q1 GDP data also published Wednesday.

     The decrease in China exports was led by lower shipments of metal working

machinery (-43.8% on year in March v. -21.8% in Feb), optical equipment (-23.7%

in March vs -12.0% in Feb) and chip-making equipment (-16.1% in March vs. +22.6%

in Feb).

     --ASIAN WEAKNESS

     Exports of machinery to China, broadly linked to capital investment, fell

13.9% on year in March following a 16.3% gain in February. Exports to the

greater Asia region, which accounted for 53% of total Japanese exports, fell

5.5% on year in March for a fifth straight drop following a decline of 1.8% in

February.

     Japan's exports and industrial production have both been hit by the slowing

Chinese economy in recent months, but BOJ officials expect the downside in the

two components to moderate in or around Q2 as Beijing's stimulus efforts kick

in.

--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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