MNI INSIGHT: BOJ To Ponder Its Next 'If Needed' Easing Move

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan believes key economic drivers will pick-up

in coming months, but officials have been tasked to identify what measures the

central bank can take to deal with an economy that doesn't recover as expected,

MNI understands.

     A less-than-stellar rebound in exports, industrial production and household

spending would prompt the BOJ to consider strengthening or tweaking its current

policy, although it still thinks government stimulus measures will be enough to

prevent a further deceleration.

     There are a list of measures open to the BOJ, long touted by Governor

Haruhiko Kuroda, but all come with risks. 

     Policymakers could lower short-term policy rates from the current -0.1%,

but that is unlikely to happen unless the yen appreciates towards JPY100 against

the dollar, which would hit consumer and business sentiment, likely hitting

momentum towards higher prices. However, such a move could further hamper

profitability at financial firms, threatening the stability of the system.

     --EXPORTS A CONCERN

     The BOJ certainly thinks it could take a while for exports to recover,

particularly as the auto-related sector remains under pressure globally and will

offset any green shoots of recovery from a pick-up in IT-related exports.

     Demand for capital goods excluding transport equipment overseas remained

weak as firms continued to be cautious about implementing capital investment.

     Household lending has failed to show a clear recovery after the Oct. 1

sales tax hike, but the BOJ still sees a recovery on the cards as the labour

market remains tight, although real incomes were hit by higher taxes.

     Industrial production is expected to rebound somewhat in Q1 after the hit

in Q4 following the natural disasters. However, output remains weak and will not

fully restore production lost in the October-December period.

     --OUTPUT LOWER

     Output fell 1.0% m/m in November after a 4.5% decline in October and

forecasts by government economists suggest data will fall again in December.

     The December production data will be a big indicator for the BOJ, with

another month of strong declines only likely to trigger more concerns over the

outlook for a virtuous cycle towards an economic recovery.

--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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