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Estoxx fades off initial resistance

By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan officials see the contraction of Japan's gross
domestic product in the third quarter as temporary, caused largely by
supply-constrains stemming from natural disasters and focus has turned to how
growth picks up in Q4 as production and supply chains recover, MNI understands.
     The officials are focused on major economic components, such as production,
real export index and private consumption, in or after October, not only to
examine the impact of the trade dispute but also to confirm the underlying
     Japan's economy posted the first contraction in two quarters in the
July-September period, down 0.3% on quarter, or an annualized -1.2%, weighed by
private consumption, capital investment and exports following recent natural
disasters, preliminary gross domestic product data released Wednesday by the
Cabinet Office showed.
     BOJ economists, along with private-sector economists, had expected GDP to
have fallen, after seeing the weak published real export index and production
data through the quarter.
     The BOJ's focus is now on real exports, as a drop would negatively impact
the real economy, including spillover effects onto capital investment and
     If global demand for Japanese goods, such as cars and capital goods
(excluding transport equipment, which is linked to capital investment overseas)
remain solid, both exports and production will likely rebound in the fourth
quarter, the BOJ believes.
     BOJ officials' analysis suggests the impact of ongoing global trade
disputes on Japan's economy is limited, as domestic capital investment plans in
the current fiscal year remain high, with no particular postponements of planned
investments observed.
     This assessment is consistent with recent interviews with firms conducted
by the BOJ headquarters and its branches, which show not many companies have
been affected by the escalating trade friction -- and even a large number of
those actually affected say the extent has been limited.
     However, BOJ officials remain vigilant over the economic outlook, as many
firms have voiced growing uncertainties regarding the global economy.
     Quite a few firms have reported that it is difficult to gauge the potential
impact of trade dispute because global supply chains are complex. This suggests
firms themselves may not fully grasp the channels and scale of the impact of
trade friction until their orders are actually affected.
     --Q4 GDP VITAL
     If Japan's Q4 GDP doesn't rebound from the weak Q3 data, it would
strengthen BOJ concerns over a turning point towards a weaker economy and BOJ
economists remain focused on whether major economic components rebound in
October, the first month of the fourth quarter.
     However, it is unlikely the BOJ will downgrade the baseline scenario of
economic recovery based on October data alone, as BOJ economists are focused on
quarter-on-quarter moves of the major economic components.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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