MNI POLICY: BOJ Focus on Weak Q2 Despite Upwardly Revised Q1

By Hiroshi Inoue

     TOKYO (MNI) - Despite the upward revision to Q1 GDP, Bank of Japan

officials know that the bigger contraction is coming in Q2 and the focus is now

on the recovery in the second half of the years, with hopes the economy has hit

bottom in the current quarter, despite continued risks, MNI understands.

     The economy contracted 0.6% q/q, or an annualized -2.2%, in Q1, weighed by

weaker private consumption and public investment, although capex was revised

higher. Real Q1 GDP was revised up from the flash -0.9% on quarter and an

annualized -3.4%.

     The upward revision came largely from higher capital investment, revised up

to a 1.9% rise from a preliminary -0.5%. There was a 4.8% fall in Q4.

     Japan's economy had been hit hard by social distancing restrictions in the

wake of the Covid-19 outbreak. The restrictions have eased in recent weeks,

helped by the government lifting its State of Emergencies nationwide, although

many consumers remain hesitant to venture too far from home.

     The domestic economy, including consumer spending, are gradually resuming

but Japan's exports are expected to remain sluggish as global demand,

particularly for autos and capital goods, remains weak.

     The BOJ accepts the economy has, temporarily at least, lost momentum

towards hitting its 2% price target but is putting supporting economic activity

and supporting finance to the business community as the priority and will

refocus on its price target once the recovery is underway.

     The average economist forecast for Japan's Q2 GDP growth is annualized at

-21.33%, according to the latest published monthly ESP Survey of 33 economists

by the Japan Center for Economic Research.

--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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