MNI INSIGHT: Japan May Avoid Sharp Downward Revised Capex: BOJ

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan is confident a sharp downward revision in

capital investment plans won't be highlighted in the June Tankan survey, despite

slower global growth and a re-escalation of the U.S./China trade dispute, MNI

understands.

     The central bank sees corporate plans as a key gauge of how the economy

will perform in coming months after decelerating in the first quarter as

production slowed and hope the next survey, due to be published on July 1, will

show a continuation of the virtuous cycle from corporate profits to spending.

     Plans by major manufacturers, dependent on global demand, will be weighed

down by uncertainties, but non-manufacturers, where investment is not directly

linked to the wider world, will likely remain solid, the BOJ feels, as companies

continue to seek solutions to labour shortages. Alongside that, a boost in R&D

spending will also help.

     Despite the expectation of the strong spending by non-manufacturers, the

BOJ hasn't ruled out the risk that such plans could be dented by a prolonged

global slowdown.

     The BOJ will not conduct additional easy policy bases on lower capex plans

alone, even if the come in below historical averages. Instead, they are likely

to await hard data rather than rely on surveys alone.

     --ABOVE AVERAGE PLANS

     The March Tankan showed capex plans were above average levels across the

board, whilst still highlighting concerns over China's slowing economy and the

dip in global demand. The BOJ hopes China's recent stimulus measures will be

effective but are aware there are certainly concerns as to how, when and to what

extent the impact will be felt.

     Major firms intend to increase investment by 1.2% in FY2019, below the 2.3%

rise outlined in the March '18 Tankan. Plans laid out by smaller firms show

investment down 14.9%, beating the MNI median forecast of -19.8% and the initial

plans of -16.8% last March. Smaller firms' capex plans tend to be revised higher

towards the end of the year.

     The BOJ is cautious, noting that the ratio is at a level near the highs

observed in the investment cycles after the burst of the bubble, suggesting

cyclical adjustments will likely slow capex spending ahead.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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