MNI POLICY: BOJ Remains Cautious, As Dec Exports Dash Hopes

--Japan December Exports Fall 3.8% Y/Y After 0.1% Gain In November

     TOKYO (MNI) - Bank of Japan officials are now more vigilant in their

outlook for exports, somewhat discouraged by the weaker-than-expected December

data, having expected to see a steady pick-up from November.

     However, the BOJ board will likely maintain the view that exports have been

on an increasing trend at the two-day policy-setting meeting that ends later

Wednesday, as they focused on underlying trends as Q4 exports rebounded from

their Q3 dip.

     --DECEMBER SLOWDOWN

     Japan's exports fell 3.8% on year in December, the first drop in three

months following 0.1% gain in November.

     The decrease was led by slower exports of chip-making equipment,

semiconductors and telecommunication equipment.

     Of note, Japan's exports to China fell 7.0% on year in December on the back

of its slowing economy, the first drop in three months and after a 0.4% in

November. China's economy has slowed as the trade dispute with the U.S. weighs

and domestic demand dips, BOJ officials view.

     Those officials don't expect China's economy to worsen sharply from here,

as Beijing steps up preventative measures.

     --CHIPS DOWN

     BOJ officials are worried about the slower exports of chip-making equipment

(-22.4% in Dec. vs. -18.9% in Nov.) and telecommunication equipment (-44.7% in

Dec. vs. -45.2% in Nov.).

     They think Japan's exports in the fourth quarter haven't offset the

temporary drop in Q3, with the trend not recovered to the level seen in Q2.

     Looking ahead, Japan's exports are expected to rise this month, boosted

ahead of the Chinese New Year in February -- with exports then likely to drop

over the China holiday period, making it difficult for BOJ economists to examine

the underlying trend.

     The next key piece of data is the BOJ's real trade indexes for December,

due Wednesday at 1400 JST (0500 GMT), with Bank officials now closely watching

whether Japan's real export index in the fourth quarter has recovered to the

uptrend seen before the Q3 drop.

     The real export index posted the first m/m drop in two months in November,

down 2.9% following a 6.3% rise in October. The real export index for the third

quarter fell 1.9% q/q, the first drop since the first quarter of 2016.

--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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