Free Trial

MNI INSIGHT: BOJ Sees Aug Data Backing Modest Growth Outlook

By Hiroshi Inoue
     TOKYO (MNI) - Solid factory output and soft household spending data for
August support the Bank of Japan board's assessment that the modest growth is
continuing while the pace of inflation remains slow despite price hikes by some
firms, BOJ officials believe.
     September data are not available until late October but BOJ officials
believe a moderate economic expansion will continue during the third quarter
based on their informal surveys of firms this month.
     The focus is on whether the year-on-year rise in consumer prices will
accelerate in the fourth quarter from 0.7% in the summer.
     A quick look at August indicators suggest the impact on the real economy
from the tensions between North Korea and the U.S. over Pyongyang's nuclear arms
threat has not fully emerged, BOJ officials believe.  //HAS NO FULLY EMERGED OR
     Despite lingering geopolitical risks, the foundation for the economic
recovery based on a virtuous circle from income to spending appears to be
intact, they believe.
     Government data released Friday showed industrial production posted the
first month-on-month rise in two months in August, up a seasonally adjusted 2.1%
after -0.8% in July.
     Industrial production is expected to fall 1.9% (revised up from -3.5%
predicted last month) in September and rise 3.5% in October, according to the
government forecast based on its survey.
     Based on this projection, production in the July-September quarter is
estimated to inch up 0.1% on quarter, which would be the sixth straight
quarterly increase, but much slower than the 2.1% gain in April-June.
     Government data released Friday pointed to weaker-than-expected household
spending in in August amid a drop in summer bonuses compared to last year and
higher medical costs.
     Real average household spending posted the first year-on-year rise in two
months, up 0.6% in August, half the MNI survey median forecast for a 1.1% gain,
after falling 0.2% in July.
     The core spending index, which excludes housing, motor vehicles and other
volatile items (close to private consumption patterns in GDP data), fell 0.1% on
month in August on a seasonally adjusted basis, the second straight
month-on-month drop following -0.3% in July.
     Retail sales rose 1.7% on year in August, the 10th straight year-on-year
gain, led by continued strong demand for automobiles, while slumping 1.7% from
the previous month on a seasonally adjusted basis.
     Long rainy days in August had a mixed impact on department store sales,
dampening sales of summer clothing while supporting demand for autumn wear.
     On the price front, the pickup has been slow but there are signs that more
firms are raising prices.
     Government data show the national average core CPI (excluding fresh food
but including energy prices) rose 0.7% on year in August, the eighth straight
year-on-year rise, accelerating from 0.5% in July.
     The increase in August was mainly led by higher electricity and gas charges
as well as gasoline prices. But there are also signs of higher goods prices in
     National CPI goods prices excluding fresh food rose 1.4% on year in August,
up from  1.1% in July. Overall goods prices also rose 1.4% on year after rising
1.0% the previous month.
     BOJ economists have been expecting the impact of the past yen's fall to
gradually pushed up durable goods prices but the pace of price rises has been
     Service costs, which account for a little over half of the CPI basket, were
unchanged on year in August after falling 0.1% in July, showing a tighter labor
supply has been slow to push up service prices.
     Excluding the upward pressure from energy prices, the underlying price
trend has shown only slow improvement. The CPI excluding fresh food and energy
(the core-core CPI) rose 0.2% on year in August, after rising 0.1% in July.
     In July, the BOJ board revised down its median forecast for core CPI for
the current fiscal year to 1.1% from 1.4% in April.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:
--MNI BEIJING Bureau; +1 202-371-2121; email:

To read the full story



MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.