MNI INTERVIEW:(2) Japan Econ Flat In Early 2020: Ex-BOJ Offcl

--Ex-BOJ Hayakawa: Oct Industrial Output Data Likely To Disappoint

By Hiroshi Inoue

     TOKYO (MNI) - Japan's economy is expected to be more or less flat into the

first part of 2020, with no powerful driving forces to drag the economy out of

Q4's expected contraction, a former Bank of Japan executive director and chief

economist said.

     With household spending expected to slow in Q4 after Q3's

pre-sales-tax-hike buying, there is little chance that the consumer will be as

buoyant in coming months, Hideo Hayakawa, a former BOJ chief economist and

currently senior executive fellow at Fujitsu Research Institute, told MNI in an

exclusive interview.

     "Compared with the previous tax hike in 2014, the last-minute buying this

time was small, but a front-loaded rise in demand before the sales tax hike was

observed.

     "We need to watch how consumer spending evolves in November to assess the

underlying trend of private consumption," Hayakawa said, although he expected

neither a sharp fall nor, with real wages flat, a pick up.

     "It is very difficult to assess the underlying trend of private consumption

right now as weak October data included the impact of powerful typhoons. Real

consumer spending wasn't so weak as the recent October data showed," Hayakawa

said.

     Sales at major department stores fell around 20% on year in October, with

automobile sales down around 25% on year, industry data showed.

     --MANUFACTURING SLOWDOWN

     Hayakawa warned that October industrial production data, due out in late

November, will likely disappoint to the downside, particularly following the

1.4% rise seen in September.

     "I'm very focused on the October output data ... it will fall considerably

as the strong September output was boosted by large scale machines, (such as

conveyor and conveying crane), which boosted the September output by about 1%,"

he said.

     "Capital investment is stronger than I expected but its momentum is slowing

as capex linked to machines has peaked out and overall capital investment is

reaching the ceiling," he added.

     --INFLATION EXPECTATIONS

     Hayakawa said that the BOJ will not accept "the Neo-Fisherian View" that

prolonged low interest rates have lowered inflation expectations, but

private-sector economists will certainly float the theory.

     "It is very unlikely that the BOJ will admit the view," he said. "But I

cannot completely deny the view as long-term interest rate are falling and

inflation expectations haven't been risen on the back of the BOJ easy policy."

     "In theory, if a central bank adopts negative interest rate policy, the

yield curve steepens. But long- and super long-term interest rates have fallen

or stay at low level in Japan despite the BOJ's action," Hayakawa said.

     "When we consider the reason why longer-end rates didn't rise under the

negative rate policy, the Neo-Fisherian View carries conviction," Hayakawa said,

although adding that raising interest rates under the current economic situation

wasn't an option now. 

--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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