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MNI INSIGHT: BOJ Unconvinced by Strong GDP; Q2 Moves In Focus

MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - The Bank of Japan is unconvinced by the strength of the
rebound in Q1 GDP, which was driven by a rise in net exports following a hefty
fall in the imports of both goods and services, underlining weak domestic
demand, MNI understands.
     GDP unexpectedly rose 0.5% on quarter in Q1, or an annualized +2.1%, thanks
to the stronger net exports, preliminary data released Monday by the Cabinet
Office showed.
     Private consumption however, which accounts for 60% of Japan's economy,
fell 0.1% in the quarter, after rising a revised +0.2% in Q4. Business
investment fell 0.3% q/q in Q1, reversing some of the gains seen in Q4, but
beating the MNI survey that forecast a fall of 2.2%.
     With consumer spending constrained in Q1, there is a growing concern that
the Japanese government's increased sales tax expected later this year will have
a further dampening effect on demand.
     --LOOK FOR EXPORT BOUNCE
     For now though, officials will focus on whether both exports and industrial
production bounce back in the April-June quarter, keeping the economy on what
the BOJ still views as a recovery path.
     Despite outright exports of goods and services falling in the period, net
against imports they contributed 0.4 percentage point to total domestic output,
slightly above expectations, for the first positive contribution in four
quarters after pushing Q4 GDP growth down by 0.3 percentage points.
     BOJ analysis showed that the decline in exports can be explained almost
entirely by the negative contribution of factors specific to Asia and IT-related
goods/capital goods. Past trends show that adjustments in the cycle for
IT-related goods takes an average of 5-6 quarters to complete and with the
current slowdown having started in Q2 2018, the bank views the current
adjustment may hit bottom in the second half of this year.
     --ASIA KEY
     How China's stimulus measures play out are becoming a key focus for the
BOJ, as it is key to a pick up in both the Greater Asia region and the prospects
for Japan's exporters -- although officials aren't expecting exports to recover
in the near term.
     The BOJ's Outlook Report released on April 25 said, "Exports are projected
to show some weakness for the time being," adding that "industrial production is
likely to be affected by the slowdown in overseas economies for the time being."
--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
[TOPICS: MMJBJI,MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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