MNI INSIGHT: Japan Q1 Econ, FY19 Capex Crucial To BOJ View

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.

     --FY19 CAPEX PLANS

     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.

--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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