MNI INSIGHT: BOJ Wary Over Capex On Weak Orders; Eye FY19 Plan

--Signs China Slowdown May Be Starting To Weigh On Japan Manufacturers

By Hiroshi Inoue

     TOKYO (MNI) - With no sign of an upturn in core machine orders in November,

Bank of Japan concern is increasing as to whether capital investment will

continue as a main driver for an economic recovery, MNI understands.

     However, the BOJ is unlikely to change the assessment "capital investment

has continued on an increasing trend" as the data tends to sharply fluctuate

month-on-month.

     BOJ officials continue to closely monitor capital investment plans in the

current fiscal year, although there is a focus on FY 2019 capital investment

plans -- expected when the BOJ March Tankan business sentiment survey is

published on April 1 -- and whether they deviate from historical averages.

     Those officials are also worried over the risk that the financial market

volatility seen around the turn of the year, if repeated, will sour business

sentiment and impede corporate capital investment.

     --WEAKER NOV ORDERS

     Japan's core machinery orders, excluding volatile orders for power

generation equipment and ships, fell 0.0% (officially rounded up from -0.02%) on

month in November, data released by the Cabinet Office Wednesday showed, missing

analyst expectations that looked for a gain of 3.3%.

     The unrounded number was the first month-on-month drop in two months and

followed a 7.6% gain in October, perhaps indicating capital investment was

affected by China's slowing economy and uncertainties caused by the U.S.-China

trade dispute.

     --HARD DATA EYED

     However, the data, a leading indicator for capital investment, fluctuates

sharply month-on-month and BOJ economists will eye visible economic data to

examine how Japan's capital investment, production and exports have been

affected by the trade friction.

     The three-month moving average of core orders fell 4.5% in November from

the previous three-month period, marking the third straight drop following -2.0%

in October and -0.9% in September.

     --GOVT KEEPS VIEW

     The Cabinet Office kept its assessment from October, saying, Japan Govt

Keeps View: "pickup of orders is marking time."

     Orders from the manufacturing sector fell 6.4% on month in November, the

first drop in two months after +12.3% in October, while orders from the

non-manufacturing sector excluding those for power generation and ships rose

2.5% on month, the second straight rise after +4.5% in October.

     --LIMITED IMPACT

     BOJ economists acknowledged that China's slowing economy is gradually

affecting activities at Japanese companies via the quarterly branch managers'

meeting on Jan. 10, following meetings and discussions with companies.

     However, they judged that the direct impact was limited.

     The BOJ's quarterly regional economic report showed that all nine regions

saw their economies either expanding or recovering, which may indicate the

limited impact on Japan from global headwinds.

     But the regional report also said, "Although the impact of uncertainties

regarding overseas economies, including the trade friction between U.S. and

China, has been limited thus far, a gradually increasing number of firms are

pointing to some effects, such as a decline in orders."

--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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