MNI INSIGHT: Japan Q3 GDP In Line BOJ View; Post-Tax Hike Key

By Hiroshi Inoue

     TOKYO (MNI) - Despite coming in weaker than expected, Japan's third quarter

GDP data did little to dispel the Bank of Japan's view that domestic demand

remains the driving force for the economy and how it holds up in Q4 and into

2020 is the key to policy, MNI understands.

     BOJ economists expect the economy to contract in the fourth quarter as

private consumption slows after the pre-tax hike spike in spending seen in Q3

and exports remain weak

     October industrial production is also expected to be weak, as manufacturing

was hit by the powerful typhoon that hit Japan in the middle of the month and it

could take some time to work through the effects.

     GDP rose 0.1% q/q in Q3, or an annualized 0.2%, thanks to the strong

consumption and stronger capital investment. However, net exports - a major

driver of GDP growth in the first quarter of the year -- fell in the latest

period, preliminary data by the Cabinet Office showed.

     Although underpinning growth in Q3, private consumption still came in below

expectations, rising 0.4%, below both Q2's unrevised +0.6% and the 0.6% gain

forecast by analysts, appearing to confirm the BOJ view that the spending boost

in the months ahead of the tax hike was less than seen in 2014.

     There are concerns at the BOJ that recent consumer confidence data and the

fall in real income levels as the tax hike bites suggest spending will be hit in

coming quarters, despite the tight labour market.

     Exports are expected to remain weak for the immediate future, weighed

mainly by capital goods and auto-related sales, as the expected pick-up in the

global economy is pushed back until mid-2020. 

     However, BOJ officials see some anecdotal evidence there will be a recovery

in exports for IT-related goods through year-end, which is a good indicator for

overall exports ahead.

--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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