MNI INSIGHT: BOJ Sees Resilient Spending Despite Weak Q4 Start

By Hiroshi Inoue

     TOKYO (MNI) - Despite the slow start to consumer spending in the

October-December quarter, Bank of Japan officials believe consumption will

rebound in Q4 GDP data after a slump in the previous three months caused by bad

weather, MNI understands.

     The BOJ's supply-side Consumption Activity Index released Thursday posted

only a small rebound in October, up a real 0.3% on the month on a seasonally

adjusted basis. It was the first rise since July, after falling 0.1% in

September and dropping 0.7% in August.

     BOJ officials believe the weakness in October was mainly caused by a

temporary factor in the auto industry. New car sales fell following suspension

of production and shipments by Nissan Motor resulting from its below-standard

vehicle inspection scandal.

     But national sales of new vehicles, including mini vehicles, posted the

second straight year-on-year drop in November.

     BOJ, OTHER CONSUMER SPENDING DATA WEAK IN OCTOBER

     The weak gain in the BOJ indicator followed government data released last

week showing real average household spending was unchanged on year in October

after falling 0.3% in September and rising 0.6% in August.

     Larger tuition payments and a carryover of the previous month's mobile

communications billings were offset by the negative effects of two major

typhoons that hit many parts of Japan for two weekends in a row as well as the

fact there was one fewer Saturday in October compared to a year earlier.

     The core household spending index, which excludes housing, motor vehicles

and other volatile items (close to private consumption patterns in GDP data)

plunged 1.8% on month in October on a seasonally adjusted basis after rising

0.1% in September and falling 0.1% in August.

     Retail sales posted the first year-on-year drop in 12 months in October,

down 0.2%, hit by the bad weather and a calendar effect.

     Sales of machinery (consumer electronics) dipped 0.9% on year as many

consumers waited for the November release of the iPhone X, instead of buying the

iPhone 8 that went on the market in September.

     Compared to the previous month, retail sales were unchanged on a seasonally

adjusted basis after rising 0.8% in September. The three-month moving average of

August-October sales fell 0.3% after rising 0.1% in the July-September period.

     BOJ OFFICIALS STILL EXPECT OPTIMISTIC ON Q4 CONSUMER SPENDING

     Despite those pieces of weak data, BOJ officials expect the underlying

trend of private consumption to remain "resilient," projecting a slight rebound

in consumption in Q4 GDP data due in February following a 0.5% drop in Q3.

     In its latest quarterly Outlook Report released on Oct. 31, the BOJ said,

"Private consumption is expected to follow a moderate increasing trend,

supported by an increase in employee income and the wealth effects stemming from

the rise in stock prices, as well as replacement demand for durable goods."

     BOJ officials expect the economy to continue expanding moderately in the

fourth quarter.

     Japan's gross domestic product for the July-September quarter rose 0.3% on

quarter, or an annualized 1.4%, as a rebound in net exports and capital

investment offset a slump in consumer spending caused by bad weather.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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