MNI POLICY: BOJ May Lower Exports, Industrial Production View

The Bank of Japan may downwardly revise its assessment on exports and industrial production from its upbeat view that both key economic components are trending higher following recent weaker-than-expected data, MNI understands.

Bank officials expect exports and production to rebound in the second quarter as high levels of order backlogs for automobiles and capital goods provide a buffer against downward pressure from slowing overseas demand.

However, they are carefully examining the risk that delays in delivery deadlines may lead to cancellation of foreign orders. Some industries, such as auto manufacturers, continue to struggle with shortages of semiconductors.

The BOJ is worried that decelerating growth in overseas economies may intensify or the timing of a pick-up in activity may be delayed significantly, possibly threatening a sharp decline in exports of automobiles and capital goods should orders be cancelled.

The BOJ will hold its final policy meeting under Governor Haruhiko Kuroda on March 9-10, with incoming governor Kazuo Ueda set to take the top job on April 9. (See MNI BOJ WATCH: Ueda Pledges Easy Policy, Flags YCC Options). The bank could update its economic assessment at the meeting.

The bank's views on the medium-term economic outlook will be updated in its Outlook Report that will be released on April 28 after the conclusion of a two-day policy meeting. January's Outlook Report said "exports and industrial production have increased as a trend, with the effects of supply-side constraints waning."

UNDER PRESSURE

Japan's industrial output fell 4.6% m/m in January for the first drop in three months following a 0.3% rise in December, marking the biggest drop since May 2022 when it fell 7.5% on the back of lockdowns in China.

BOJ officials are assessing the extent of the impact on the weaker production data caused by less working days at automobile makers in January due to semiconductor shortages.

Based on its survey of manufacturers, the government projected industrial production would rise 8.0% in February (revised up from a 4.1% increase forecast last month) and rise 0.7% in March.

Adjusting the upward bias in output plans, the government forecast production would rise 1.3% m/m in February. Based on this assumption, production would fall 3.1% on quarter over the January-March period, the second straight drop following a 3.0% fall in Q4.

The BOJ's real export index, calculated using Ministry of Finance trade data, fell 2.9% m/m in January for the second straight drop following a revised decline of 4.5% (from preliminary fall of 4.7%) in December.