MNI INSIGHT: BOJ Regional Report To Show Limited Trade Impact

--If Stocks Weaken Further, May Impact Biz Investment Plans

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan branch managers will likely report limited

regional disruption from ongoing global trade disputes, but volatile financial

markets could impede firms capital investment plans, MNI understands.

     Heads of the BOJ's regional offices will gather for their quarterly meeting

in Tokyo Thursday, with the central bank's headquarters looking for information

on how the trade dispute has been affecting businesses across the regions.

     The regional economic report will likely say that firms remain set to carry

through on capital investments, but are concerned that a deepening trade dispute

could cause further volatility in financial markets. 

     --WEAKER STOCKS

     Further weakness in the Nikkei stock index or yen appreciation against the

dollar could push firms to delay implementation of capital investment plans.

     The Nikkei stock index closed at 22,271.30 on Monday, down 423.36 points,

or 1.87%, from Friday's close. The Index hit a multi-decade intraday high of

24,448.07 as recently as Oct 2. 

     BOJ officials don't expected weaker stocks to weigh heavily on business

sentiment now, but they are vigilant against worsening developments in global

financial markets, which will dampen business sentiment and will impede capital

investment.

     The latest BOJ Tankan survey, released on Oct 1, showed the impact of the

trade dispute and higher costs on business sentiment was limited and capital

investment plans remained solid.

     --LITTLE EMERGING MARKET IMPACT

     Current volatility in certain emerging market economies, largely Turkey and

Argentina, is having a limited impact on Japan's export economy, as trade links

are modest. Newly Industrializing Economies (NIEs) and Association of Southeast

Asian Nation (ASEAN), far more important trading partners for Japan, have yet to

experience any contagion.

     Japan's real export index, calculated by the BOJ based on the government

trade data, rose 2.1% on month in August for the second straight rise following

+0.3% in July. 

     BOJ economists are focused on how domestic firms have changed production

and procurement procedures in China, how they have reviewed their capital

investment in China, and how they have changed their production and investment

in the U.S.

     Japan's industrial production numbers were weak in July (-0.2% on month)

and August saw only a sluggish rebound (+0.2% on month). But BOJ economists are

largely unconcerned, seeing the weak spot as a temporary drop caused by poor

weather and natural disasters, with supply chains now improving, supporting a

recovery in production.

     They believe that both exports and industrial production are on an

increasing trend and don't expect Japan's economy to deviate from that recovery

path anytime soon.

--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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