MNI INSIGHT: BOJ Unfazed By GDP Revision, Sees Q4 Contraction

By Hiroshi Inoue

     TOKYO (MNI) - The upward revision to third quarter GDP data was welcome

news for the Bank of Japan, but will have little impact on its thinking ahead of

the December policy meeting as it already sees an October slowdown in the wake

of the sales tax hike and the string of natural disasters that hit the region,

MNI understands.

     Consumer spending, industrial production and exports were all weak in

October, with the global slowdown an added drag, making it difficult for BOJ

economists to see the underlying trend at the start of Q4.

     --GDP REVISED UP

     Revised data showed Japan's economy grew 0.4% q/q, or an annualized 1.8%,

in Q3, thanks to strong capital investment, public investment and private

consumption. Real Q3 GDP was revised up from the preliminary estimate of +0.1%

q/q and an annualized 0.2%, beating expectations.

     The contributions to overall GDP from private consumption -- which accounts

for about 60% of GDP - and capital investment were revised higher.

     The higher capital investment numbers were not a surprise to BOJ officials,

but they now await the revised forecasts for 2020 in the December Tankan survey

and whether it will help underpin domestic demand until the global economy picks

up sometime in 2020.

     --Q1 RECOVERY

     The November trade data due out Dec. 18 and industrial production due out

on Dec. 27 will also give an early indication of any pick-up after October --

although it is unlikely any recovery will save the economy from the Q4

contraction expected by both BOJ and private-sector economists ahead of a Q1

recovery.

     The BOJ had expected industrial production to be weaker on the back of

lower exports and the effects of the tax hike, but the October number was worse

than feared, although partly from the effects of temporary factors.

     It was down 4.2% on month in October for the first drop in two months and

production for the fourth quarter is expected to fall 4.3% on quarter. The BOJ

now see both industrial production and exports to show signs of recovery in or

after Q1 2020.

--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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