MNI INSIGHT: BOJ Sees Weaker GDP; Mulls Reinstating Forecast

--Full Year Growth Seen At Lower End Of April Scenarios

By Hiroshi Inoue

     TOKYO (MNI) - Japan's economy likely saw a greater contraction in Q2 than

expected at the time of the Bank of Japan's April outlook report, with full year

growth now expected to fall 5%, the lower end of the spring scenario range, MNI

understands.

     The BOJ didn't publish a median forecast in April, following a lead from

the U.S. Federal Reserve in publishing just a range of scenarios. With high

uncertainty over the spread of the virus and how it would impact the global

economy, board members had varying interpretations of the baseline economic

assumptions offered by the bank's economists and could not agree back then on a

single forecast.

     Although it is not certain, the BOJ may reinstate a median forecast into

the July Outlook report, again following the Fed's lead, with an expectation the

economy will contract by 5.0% this year, the lower end of the -3.0 to -5.0%

range laid out in April.

     Despite the weaker forecast, the BOJ is expected to stick with the view

that the economy will gradually pick up through the second half of the year,

although uncertainty remains over both the pace and timing.

     Policymakers are expected to stand pat when the two-day meeting ends July

15, as the latest moves to boost corporate funding only kicked in late June,

with officials still looking at the impact. They will review medium-term

economic growth and inflation outlooks and decide on whether to publish

forecasts or scenarios.

     --WEAKER GLOBAL ECONOMY

     The International Monetary Fund lowered its 2020 global growth forecast to

-4.9% in 2020 from April's -3.0%, although GDP is expected to bounce 5.4% in

2021. The lowered forecast for the coming year will feed directly into the BOJ's

outlook, and could hit the BOJ's view on exports.

     Alongside downgrading global growth, the IMF trimmed the outlook for

Japan's major trade partners, cutting the U.S., ASEAN and China forecasts to

-8.0%, -2.0% and +1.0% respectively, from the -5.9%, -0.6% and +1.2% made in

April.

     The BOJ, concerned the global slowdown will hit exports, will likely

maintain the view that Japan's overseas sales, "including inbound tourism

consumption, are likely to remain weak" and the near-term view "exports of

automobiles and capital goods are projected to be under downward pressure, as

automobile sales in the U.S. and Europe are expected to be weak."

     Weaker exports will then weigh on any recovery for industrial production,

although investment in digitalization and general R&D will offer some support

--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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