MNI INSIGHT: US Economy Greater Concern For BOJ Than China

     TOKYO (MNI) - Bank of Japan concerns are shifting more to the outlook for

the U.S economy than a  Chinese one which is starting to show tentative signs of

escaping the worst of the recent shock, MNI understands.

     A solid U.S. economy is a main pillar of the BOJ's baseline view that the

global economy will pick up into the second half of the year and any change to

that will trigger a shake-up that will destabilize that outlook and force

policymakers to consider further policy moves.

     The spread of the coronavirus across the U.S. and the plunge in crude

prices to near break-even levels for shale producers which could push them into

default of billions in debt.

     Total debt including 'junk' bonds issued by U.S. shale producers has

increased sharply in recent years, helped by the low-interest rate environment

and the BOJ is getting more concerned that a pick-up in the level of defaults

will destabilize the financial system and increase downward pressure on the

economy.

     Although an early recovery for China's economy would be a positive, it

would pale into insignificance if the U.S. economy turned sharply lower, which

would stall any global recovery, increase volatility in financial markets and

likely send the yen higher.

     As the virus spreads and the downside risks linked to the plunge in the oil

price increase, the Fed is expected to cut the federal funds rate again at the

March 18 FOMC meeting, if not sooner, with market pricing suggesting at least

50bps of easing.

     The FOMC cut rates 50bps on March 3, the first inter-meeting cut since

October 2008, the height of the financial crisis.

--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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