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--BOJ Likely To Downgrade Outlook, No Imminent Policy Action
By Hiroshi Inoue
TOKYO (MNI) - Bank of Japan concerns of an economic slowdown are growing,
with the slowing China economy now impacting to a greater degree and evident
with every new set of data released, although it is unlikely to trigger an early
change in policy, MNI understands
The latest Japan industrial production data, released Thursday, showed a
sharp decline in January, down for a third straight month, as slower exports to
China filter through into the output numbers.
BOJ officials are now set to forecast a weaker outlook for the economy, as
their concerns grow that falling production levels will hit capital expenditure
across the manufacturing session in the months to come.
In a statement, accompanying the data the Ministry of Economy, Trade and
Industry (METI) lowered its outlook from the previous month, saying that
production is now "marking time", revised from "picking up moderately".
METI's downward revision won't directly link to the BOJ assessment, but the
weak data may prompt the central bank to tweak its current assessment that
industrial production is on an increasing trend -- but it will not immediately
trigger an extension of easy policy.
Industrial output is a key piece of data for the BOJ, closely watched to
assess and predict both the pace of the current recovery and the outlook,
reflects both external and domestic demand and is a big driver of capital
expenditure -- another of the BOJ's policy drivers.
The latest data will undermine the BOJ view that the production of
electronic parts and devices has remained on an increasing trend, as they have
been used for a wider range of products.
Weaker production of machinery and capital goods excluding transport
equipment indicate a slowing of capital investment, and the BOJ is now getting
increasingly nervous over capital investment at home.
Based on METI's forecast, factory output is seen picking up to +5.0% m/m in
February, then falling 1.6% in March. Adjusting the upward bias in output plans,
METI forecast production would rise 0.4% on month in February.
January industrial production in fell 3.7% on month in following a fall of
0.1% in December, the data from METI showed, outpacing the MNI median forecast
looking for a fall of 2.6%. Shipments fell 4.0% on month in January for the
first m/m drop in two months following +0.0% in December.
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