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MNI (London)
--China Slowdown Seen Impacting Exports, Although May Bounce In January
--BOJ Economists Eye Q1 GDP Data To See Underlying Trend
By Hiroshi Inoue
     TOKYO (MNI) - Although heartened by the modest growth rebound in Q4, Bank
of Japan officials remain cautious over the outlook as downside risks remain,
particularly concerns over the strength China's economy, MNI understands.
     With Q3 2018 seeing the economy dip in the wake of a string of natural
disaster, before recovering somewhat in Q4 despite slowing global demand, BOJ
insiders want a closer look at the Q1 2019 data to eye the underlying trend.
     Japan's economy posted growth of 0.3% on quarter, or an annualized 1.4%,
thanks to higher private consumption and capital investment, preliminary gross
domestic product data released Thursday by the Cabinet Office showed. Although
encouraging, the Q4 recovery did not fully offset the downturn seen in Q3, when
growth fell a revised 0.7% q/q.
     Both capital investment and private consumption bounced back in Q4 as
expected by the BOJ, but focus at the central bank has shifted to how both
exports and industrial production have been affected by the slowing global
     BOJ economists now see the impact of the China slowdown appearing in the
data, with weak net exports challenging their view that exports have been on an
increasing trend. Net exports of goods and services made a negative 0.3
percentage point contribution to GDP -- the third consecutive quarterly negative
     A key point now for the BOJ is how weak exports to the wider Asian region,
including China, are offset by exports to advanced economies -- although a
slowdown in Europe in Q4 and early Q1 may not help.
     Exports are expected to have risen in January due to a pick up in demand
from China before the Chinese New Year, but reverse in February as the early Feb
holiday keeps much of China's industry closed for at least a week.
     The Ministry of Finance will release the January trade data on Feb. 20.
     One bright note BOJ officials highlight is that the volatility in global
financial markets in the fourth quarter and the ongoing global trade disputes
appeared to have only limited impact on both corporate and household sentiment.
     Private consumption, which accounts for about 60% of Japan's GDP, rose 0.6%
on quarter in Q4, marking the first quarterly rise in two quarters after an
unrevised -0.2% in Q3, while business investment rose 2.4% on quarter in Q4 (the
median forecast was +2.0%) rebounding from -2.7% in Q3.
     There is a concern in the BOJ that if exports lose momentum, companies may
delay capital investment, increasing the risk that Japan's modest recovery is at
an inflection point.
     Those officials will closely eye capital investment plans in fiscal 2019,
available in the BOJ March Tankan business sentiment survey due out on April 1,
although the June revisions will be a more accurate reading.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
MNI London Bureau | +44 203-865-3812 |