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MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - The scale of the Japanese Q4 slowdown was even greater than
that expected by the Bank of Japan, but the central bank still expects a bounce
in the first three months of the year, although it acknowledges the coronavirus
risks derailing the recovery, MNI understands
     The BOJ will likely judge the extent of any recovery in Q1 before taking
any policy action, giving it the opportunity to see the results of the March
Tankan survey and the quarterly forecasts prepared for the April policy meeting.
     The slowdown in Q4 had been expected in the wake of the October sales tax
hike and the string of natural disasters in the autumn, although the size was
larger than expected and it is unlikely any rebound will come close to replacing
lost output.
     GDP fell 1.6% q/q in Q4, or an annualized -6.3%, preliminary data showed.
Private consumption, which accounts for about 60% of Japan's GDP, fell 2.9% q/q
in Q4, while business investment fell 3.7% q/q.
     The BOJ still sees growth recovering, with "effects of the tax hike and
natural disasters dissipating" although weak overseas economies could continue
to weigh.
     However, coronavirus has increased uncertainty over the outlook and the
impact on manufacturers, supply-chains and sentiment, although it is unclear
whether or how the BOJ would react if it sees any increase in risk to its
recovery scenario.
     Some BOJ officials are now concerned that the outbreak could force a second
straight quarter of contraction, undermining the bank's outlook and putting a
dampener on its January growth forecasts.
     The BOJ next meets on March 18-19, but the late April meeting is seen as
key - after the results of the March Tankan survey have been seen, after the
quarterly branch managers meet and as the bank lays out the next round of
quarterly forecasts.
     The key focus will again be on whether capital investment plans are revised
lower in March and fall below historical averages, particularly whether or not
the virus impacts the corporate outlook, damaging the virtuous cycle between
profits and spending that the BOJ sees underpinning the recovery.
--MNI London Bureau; tel: +44 203-586-2225; email:
[TOPICS: MMJBJI,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 |

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