MNI INSIGHT: BOJ To Keep Output View Despite Weak Nov Data

--BOJ Officials Still Focused On Q/Q Data For Underlying Trend

--Growing BOJ Concerns Over Softening Global Economy

By Hiroshi Inoue

     TOKYO (MNI) - Despite weak November industrial production data, Bank of

Japan officials maintain the view that production is on a moderate rising trend,

although they are concerned over the outlook, as demand may be hit by slowing

overseas markets, MNI understands.

     BOJ officials judge that November's drop in production was a reaction to

October's rise and they continue to be focused on the  quarter-on-quarter move

in the fourth quarter to examine the underlying trend.

     Industrial production fell 1.1% on month in November, coming in stronger

than the MNI median economist forecast of -1.9%, but below the 2.9% gain seen in

October, data released Friday by the Ministry of Economy, Trade and Industry

(METI) showed.

     --MIXED BAG

     Increased production of machinery and chemicals excluding medicines was

offset by falls in general-purpose and business oriented machinery.

     Production of general-purposed and business machines, which are used for

capital investment at home and abroad, fell 11.0% on month in November following

a 7.1% gain in October.

     Production of electronic parts and devices fell 1.7% on month in November

after +8.7% in October.

     Shipments of capital goods excluding transport equipment, a key capex

indicator, that BOJ economists are focused, dropped 4.1% on month in November

for the first drop after +5.4% in October.

     In a statement, METI maintained its outlook from last month, saying that

"production is picking up moderately."

     --Q4 SEEN RISING

     Based on METI's forecast, factory output is seen rising 2.2% on month in

December and then fall 0.8% in January. Adjusting the upward bias in output

plans, METI forecast production would drop 0.7% on month in December.

     If the output fell 0.7%, as expected, industrial production is expected to

rise 1.7% in the fourth quarter, the first quarterly rise in two quarters

following a fall of 1.3% in the third quarter.

     BOJ economists expected Q4 production to pick up, boosted by the recovery

following the temporary drop caused by the string of natural disasters across

Japan in the third quarter.

     Those officials are focused on how global demand, mainly in China, evolves

in the coming months and how Japan's production has been adversely affected by

overall global demand.

     --BOJ CONCERNS

     Some BOJ board members voiced concern over the outlook for the global

economy at the December 19-20 policy-setting meeting, the summary of opinions

expressed at the meeting released Friday showed.

     BOJ officials had expected November production data to be a touch weaker

after November export data disappointed -- also in reaction to strong October

data.

     Those officials expect the impact of global trade friction to be seen in or

after January 2019 and they now have the added concerned that volatile financial

markets will worsen households' and firms' sentiment, impeding their spending.

     The BOJ's latest Tankan corporate sentiment survey showed executives are

weighed down by increasing uncertainties over the global economy. The BOJ board

will examine how corporate sentiment and overall business flow has evolved via

feedback from its quarterly branch managers' meeting scheduled on Jan. 10, 2019.

--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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