MNI INSIGHT: Weaker Tankan Capex A Trigger On BOJ Outlook

By Hiroshi Inoue

     TOKYO (MNI) - If large downward revisions to capital investment plans by

major firms are signalled in the Bank of Japan's December Tankan survey, it

could prompt the central bank to review its baseline outlook for the economy

that sees the economy pick up in or around the first half of 2020 economic

recovery scenario, MNI understands.

     Significant downward revisions would increase the risk that domestic demand

- a key driver of Japan's economy -- would slow and still sluggish exports would

be unable to pick up the slack.

     --CAPEX IS LAST HOPE

     Capex spending has offset downward pressure from weak exports and sluggish

private consumption and helped stop the economy turning lower, but BOJ officials

see capital investment slowing as some manufacturers are pulling back on

investment in new machinery as the global economy slows.

     Although they see a pull-back in capex over coming months, it is still

expected to pick up moderately over the longer-term perspective and large

downward revision by major firms will be avoided.

     "Exports are projected to continue showing some weakness for the time being

with the timing of a pick-up in the growth pace of overseas economies being

delayed," the BOJ said 

     In 2018, capex plans by major firms in fiscal 2018 were revised up to

+14.3% in December from +13.4% in September. Plans by major firms in the

September Tankan this year were +6.6%. The MNI median forecast of capex by major

firms is +6.0%.

     --OUTPUT PRICES EYED

     Bank officials are also focused on change in output prices -- diffusion

index of "rise" minus "fall" -- to see if corporate price-setting activity and

the momentum towards higher price rises has weakened.

     Prices for services, including eating-out, rose steadily after the sales

tax hike but the overall inflation rate lacks momentum as corporate price hikes

were limited and consumers are economizing as the rate hike has pressured real

incomes, leaving some BOJ officials that momentum could soon worsen.

     --MAJOR EVENTS

     Alongside the Tankan, other global events - including the UK election and

ongoing trade friction - and their impact on financial markets remain a concern

to the BOJ.

--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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