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MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - With global growth risks growing, Bank of Japan economists
are now looking to see if the underlying trend of the domestic economy continues
to recover from the weakness seen in the natural-disaster impacted third quarter
of 2018, focusing on exports, industrial production and FY19 capital investment
plans, MNI understands.
     BOJ officials are waiting to see if fourth quarter industrial production
rebounded from the third quarter, when it fell 1.3% q/q. The December data, due
out Thursday, will complete the Q4 numbers.
     Those officials aren't expecting Q4 production to have made up all of the
shortfall from the July-September period, as most companies are already
operating at close to full capacity.
     The real export index calculated by the BOJ based on the Ministry of
Finance trade data rose 1.2% q/q in the fourth quarter after falling 1.9% in Q3,
leaving the Q4 recovery short of fully offsetting Q3's temporary dip, and with
production closely linked to to exports and capital investment, this gives a
good indication of where Thursday's data is likely to come in.
     Although expecting only a partial recovery, officials are eager to see
whether Q1 sees both exports and industrial production return to their uptrend
seen in Q218.
     Another focus will be on the strength of capital investment plans for
fiscal 2019, although they will only available when the BOJ March Tankan
business sentiment survey is published on April 1.
     How capital investment plan for the upcoming fiscal year deviate from
historical average will be closely watched by BOJ economists, although the March
Tankan forecasts can be unreliable, as most companies would not have fully
formulated their plans.
     However, BOJ economists are focused on initial capital investment plans in
the March Tankan survey to gauge corporate willingness to implement capital
investment, maintaining the virtuous cycle from profits to spending, a key
mechanism for economic recovery.
     In the March 2018 Tankan, capital investment plans by major firms was seen
at +2.3% and capex by smaller firms was down 16.8%, although both were above the
historical average. In the June 2018 Tankan, capex by major firms was revised up
to +13.6% and capex by smaller firms was also revised up to -11.8%.
     Revised capital investment plans, due to be published in the June Tankan
survey due out July 1, are more reliable estimates and will be more closely
watched by BOJ officials.
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