MNI INSIGHT: IMF, Branch Report Back BOJ View; Outlook Vital

By Hiroshi Inoue

     TOKYO (MNI) - The latest evidence offered to the Bank of Japan underpins

its view that there is still momentum towards hitting its price stability

target, with the current economic and financial conditions giving it some leeway

before rushing into additional easy policy when it meets in late October, MNI

understands.

     With all nine of the BOJ's regional branches seeing the domestic economy as

steady or improving, the Tankan survey pointing to healthy investment plans

despite falling corporate sentiment and the latest World Economic Report from

the International Monetary Fund predicting steady global growth, any move to

ease will be dependant entirely on how policymakers see the extent of downside

risks, particularly from global growth.

     With the BOJ expecting a continued slowdown into Q4 following the

consumption tax increase in early October, Board members are looking through

into Q1 2020 for a pick-up in the economy.

     Policymakers are also looking at whether continued above potential growth

will keep the output gap positive, which narrowed in Q4 but remained positive

for an 11th straight quarter.

     The BOJ's regional economic report released on Tuesday showed Japan's

economy continues to either expand or recover in all nine regions, indicating

limited impact on domestic demand from the sustained global slowdown. The report

also showed that capital investment by non-manufacturers remained solid,

consistent with the Tankan, underpinning the BOJ view that the virtuous cycle

from profits to spending continues.

     BOJ branch managers did however point to the pessimistic corporate outlook

for overseas demand, which could put off the implementation of capital

investment, a factor that Governor Haruhiko Kuroda has said could hit the

sustainability of domestic demand.

     But the latest IMF outlook, upon which the BOJ bases its own view, points

to a pick-up in global growth, albeit delayed until 2020.

     The WEO said, "the global economy is in a synchronized slowdown, with

growth for 2019 downgraded again - to 3% - its slowest pace since the global

financial crisis. Global growth in 2020 is projected to improve modestly to

3.4%", although the IMF did warn of continued uncertainties.

--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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