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Outlook Remains Bearish


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Bear Cycle Still Intact

MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - A slew of Japanese data Friday will have little impact on
Bank of Japan thinking ahead of the late-April policy meeting, with Tokyo
inflation data in line with expectations and industrial production numbers
narrowly beating forecasts although not recouping the damage done in previous
months, MNI understands.
     Bank officials were encouraged by the rebound in production, seen as a key
indicator of both domestic and external demand, but maintain their cautious
stance until a return to the previous trend is maintained. But for now, they
await April data to get a better feel for the overall state of the economy. 
     Policymakers will likely stand pat on monetary policy following the meeting
on April 24/25.
     February industrial production rose 1.4% on month following -3.4% in
January, -0.1% in December and -1.0% in November, according to preliminary data
released Friday by the Ministry of Economy, Trade and Industry, beating the MNI
median forecast of a 1.0% gain
     The March Tokyo core consumer price index excluding fresh foods rose 1.1%
on year in March for a 21st straight rise. It was unchanged from February's 1.1%
gain and in line with the MNI median forecast. The gain was driven largely by
the higher crude price contribution.
     --CAPEX KEY
     BOJ economists want to see if shipments of capital goods -- excluding
transportation equipment -- in demand for overseas capex rebound following
recent weakness.
     The expected drop in industrial production over Q1 following weak exports
is seen as a precursor to weak capital investment plans in fiscal 2019. The BOJ
awaits Monday's Tankan survey for an early look as they see capital investment
plans as a barometer to gauge the sustainability of the virtuous cycle from
profits to spending.
     If major manufacturer capital investment plans are weaker-than-historical
average, BOJ concern over a slowing recovery will gather pace, although they
will unlikely push for policy action before seeing revised data in June.
     The latest central Tokyo inflation rate, a lead indicator for the
nationwide data, will have little impact on their cautious price view as they
focus on how annual corporate price revisions expected next month boost consumer
     Many food and drink companies plan higher retail prices in April in the
wake of higher raw material and labour costs as its becoming more difficult to
resist higher costs through productivity.
     BOJ economists haven't yet gauged how planned price hikes affect the the
overall CPI and await to see how they impact consumers and corporate profits and
will study inflation expectations in a follow-up of the March Tankan business
sentiment survey due out on April 2.
     There were some bright spots for BOJ officials, as they are encouraged by
higher goods prices. The core-core CPI (excluding fresh food and energy) -- a
key indicator of the underlying trend -- rose 0.7% on year in March, unchanged
from February.
     The BOJ will release their medium-term economic growth and inflation
outlook through fiscal 2021 after a two-day policy-setting meeting and they are
expected to confirm ongoing price weakness will make it difficult for the BOJ to
achieve their 2% target in FY21.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
MNI London Bureau | +44 203-865-3812 |