MNI INSIGHT: BOJ: Underlying Spend Trend Solid Despite Weak Q1

By Hiroshi Inoue

     TOKYO (MNI) - Economic data related to private consumption for the first

quarter of 2018 were weak, indicating that consumer spending temporarily lost

momentum, offering no boost to gross domestic product during the quarter.

     However, Bank of Japan officials believe the underlying trend of private

consumption remains solid and they don't see the need to change the assessment

"private consumption has been increasing moderately, albeit with fluctuations,

MNI understands.

     Private consumption might have been weak for the first quarter but steady

improvement in the employment and income situation continues and the underlying

trend of private consumption hasn't changed, a person who is familiar with BOJ

thinking said.

     The BOJ's supply-side Consumption Activity Index in the January-March

period posted the first quarterly drop in two quarters, down 0.4% on quarter

following a 0.4% gain for the fourth quarter of 2017.

     --REVISED DATA EYED

     Another person familiar with the BOJ's economic assessment said that the

Consumption Activity Index suggested weak private spending during the first

quarter but it remains uncertain whether the spending was as weak as the data

suggested.

     The person added that the BOJ's Consumption Activity Index is designed to

forecast revised private consumption, not a preliminary estimate.

     The Cabinet Office will release preliminary Q1 GDP data for 2018 at 0850JST

on Wednesday, May 16 (2350 GMT on May 15) and release revised GDP data on June

8.

     --WEAK GOVT DATA

     The Cabinet Office release Friday showed that the Private Consumption

Integrated Estimates Index, which is based on both supply- and demand-side data,

fell 0.3% on quarter in the January-March period, the first drop in two quarters

following +0.5% for the fourth quarter of 2017.

     In January-March, average real spending by total households (including

one-person households) fell 1.2% on quarter on a seasonally adjusted basis after

-0.3% in October-December, the third straight quarterly drop, while adjusted

spending by households with two or more people rose 0.5% on quarter in Q1 after

-0.6% in Q4, the first q/q rise in three quarters.

     --FLAT Q1 GDP

     Japan's GDP for the January-March quarter is expected by economists to be

flat both on quarter and at an annualized pace, as solid capital investment is

offset by weak private consumption amid bad winter weather.

     The flat median forecast for Q1 GDP is based on projections by nine

economists, which ranged from -0.2% to +0.1% on quarter, or an annualized -0.9%

to +0.5%.

     Four out of the nine economists projected GDP contracted for the first time

since October-December 2015, when it shrank 0.3% on quarter, or 1.1% on an

annualized basis, hit by sluggish consumer spending amid a slow wage recovery

and uncertain growth prospects at the time.

     The median forecast for private consumption, which accounts for about 60%

of the GDP, is unchanged on quarter in Q1 (forecasts ranged from -0.2% to +0.2%)

after rising 0.5% in Q4.

--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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