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MNI (London)
--BOJ Concerned 'Virtuous Cycle' At Risk If Capex Stalls
By Hiroshi Inoue
     TOKYO (MNI) - The Bank of Japan will keep its easy policy unchanged this
week, but its becoming increasingly concerned that slowing industrial output and
weaker exports risk impacting their much-watched 'virtuous cycle', the link
between corporate profits and spending.
     Japan's economy is expected to be in a Q1 soft-spot which will likely
extend into Q2, but BOJ officials are awaiting further data before considering
additional easy policy.
     As already noted by MNI in recent weeks, policymakers are unlikely to lower
their overall assessment of the economy, but sluggish data will prompt the board
to consider adjusting their assessment for exports and production, as the first
quarter outturn almost certainly be weak.
     Unless global financial markets destabilize or major corporations' capital
investment plans for FY2019 fall sharply, the central bank is prepared to exert
patience and see if there are signs of a pick-up in Q2 or Q3.
     Overall the BOJ is prepared to wait as it is optimistic that Beijing's
recent moves to stimulate the Chinese economy, a Federal Reserve stepping back
from a tightening path and a cyclical recovery in the IT sector will all help
keep Japan's economy motoring along.
     There is though growing concern about the eurozone economy, with fears the
slowdown could get worse as Brexit, Italy and a possible trade spat with the
U.S. weigh.
     The BOJ is more upbeat about China, encouraged by the stimulus measures
that will prevent their economy from worsening. Although unsure exactly when
that will feed through into the domestic economy, the BOJ believes it will boost
other Asian countries and be supportive of both Japan's exports and industrial
     Global demand for IT-related goods has fallen, but the BOJ believes
cyclical demand will eventually see increased markets for Japan's sector giants.
     In the short-term BOJ focus is on how domestic demand, such as capex and
household spending holds up amid slowing exports as the global economy stutters.
     Private consumption is unlikely to strengthen significantly, with wage
hikes still muted and consumers haven't been accepted higher prices.
     --CAPEX KEY
     Therefore, continued capital investment is the key to avoid a worsening of
the economy and for the BOJ to hold back on further easy policy.
     The first indication of FY19 spending plans will come with the March Tankan
survey, due for release on April 1, although a clearer view will be seen in the
June update.
     BOJ officials expect the pace of capex increase to be slow-moving, with
spending at non-manufacturers offsetting a slowdown in spending by
     The BOJ has reservations over the accuracy of the initial Capex plans laid
out in the March survey, but they will take note of how early indications
deviate from historical averages.
--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 |