MNI POLICY: BOJ Regional Reports To Focus on Capex, Spending

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan branch managers gather Tuesday for their

quarterly meeting and will quickly focus on how the October 1 hike in

consumption tax has dented spending and whether corporate investment plans will

continue to underpin the economy in the second half of the fiscal year.

     The Bank's 32 regional managers, along with the 3 overseas representative

office heads, will report on local economic developments, with emphasis on the

capital expenditure intentions laid out in the latest Tankan survey.

     The September Tankan survey saw business sentiment fall to +5 from +7 in

June, with the major non-manufacturers index falling to +21 from +23 in June,

although there was little sign that slowing global trade had significantly

impacted investment spending, with capex plans by both major and smaller firms

above average levels.

     Major firms intend to increase investment by 6.6% in FY2019, just a little

weaker than the MNI median forecast of a 6.9% rise. Smaller firms' plans show

investment down 6.7%, below the MNI median forecast of -5.8%.

     --WEAKER CAPEX WORRY

     As has been well outlined, BOJ economists feel investment plans are

overstated in the latest Tankan reading and don't fully reflect the current

uncertainties in the global economy and, if following historic patterns, could

be revised lower now the second half of the fiscal year is underway - with any

slowing of investment likely worsening the virtuous cycle from profits to

spending.

     But the BOJ is looking for capex from more domestic-focused firms to boost

efficiency, help cope with labor shortages and improve research and development,

all relatively less susceptible to changes in overseas demand.

     --INDUSTRIAL OUTPUT

     Slowing domestic demand could already be manifesting and that is a concern

for the BOJ. Industrial production slowed in August, with central bank officials

concerned that events both at home and abroad are weighing on growth.

     Industrial production fell 1.2% m/m in August, a first drop in two months

after a 1.3% gain in July. The government lowered its assessment, saying

production has been showing a weak tone recently.

     The BOJ's supply-side Consumption Activity Index posted its first gain in

three months in August, up a real 3.1% on a seasonally adjusted basis, following

an upwardly revised fall of 1.2% (previously -2.4%) in July, after government

data showed real average household spending up 1.0% year-on-year in August for

the ninth straight rise.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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