MNI INSIGHT: Capex Downward Revision May Spoil BOJ Outlook

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan is not expecting a sharp downward revision

to corporate capital investment plans in the Tankan survey Tuesday, but if plans

are lowered against expectations, the central bank will hear an alarm bell

ringing, warning of a risk that the virtuous cycle from profits to spending is

set to reverse, MNI understands.

     Although not expected, any downward revision of capex plans will increase

pressure on the BOJ board to push through additional easing measures at its next

policy meeting, when the board reviews its medium-term economic growth and

inflation outlook.

     BOJ officials expect business sentiment to have worsened broadly from three

months ago amid sluggish global demand and ongoing trade disputes. However, they

don't expect investment spending to be significantly revised, as historically,

the revisions don't come in September.

     BOJ economists note that even back in September 2008, just after the Lehman

shock hit world markets, there was no significant revisions and no sharp

downturn in the Tankan diffusion indices until the December reading.

     The June 2019 Tankan showed that capital investment plans by major firms

were +7.4% and the MNI median forecast for the latest reading is still at 6.9%.

     In the Sep '08 Tankan, investment plans were revised to +1.7% from +2.4% in

June, before being revised to -0.2 in December.

     --MACHINERY ORDERS EYED

     Any downward capex revision will initially show up in investment linked to

machine orders, seen initially through the machinery orders and shipments of

capital goods, excluding transport equipment data the BOJ analyses, and that

data tends to be volatile.

     The lingering impact from the slowing global economy may not fully show up

until the Bank of Japan's December survey is published.

--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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