MNI POLICY: BOJ Vigilant On Slower Q1 GDP

Japan's economic growth in the fourth quarter had little impact on the Bank of Japan's economic view, as bank officials are more focused on how the economy slows in the first quarter amid the state of emergency, MNI understands.

BOJ economists expected the economy to have been boosted in the fourth quarter through until mid-December by pent-up demand and the government's' Go To Travel' campaign.

The real export index, calculated by the BOJ based on trade data, rose 12.7% q/q in the fourth quarter while the Consumption Activity Index rose 2.7% q/q over the same period.

The focus among bank officials has shifted to how the overall economy will evolve and how face-to-face businesses will be hit by the state of emergency and the suspension of the government campaign in the first quarter.

The BOJ's baseline scenario is that the economy is likely to follow an improving trend, but the pace of improvement is expected to be only moderate while vigilance against Covid-19 continues.

BOJ economists expect both exports and production to remain firm with a strong manufacturing sector at home and abroad, easing downward pressure on the economy and sentiment from weaker consumer spending.

Japan's economy grew in the fourth quarter of 2020 for the second straight increase, rising 3.0% q/q, or an annualized 12.7%, boosted by private consumption and capital investment, according to preliminary GDP data released by the Cabinet Office on Monday.

Private consumption, which accounts for about 60% of Japan's GDP, rose 2.2% q/q in Q4, after an unrevised 5.1% rise in Q3. The median forecast was for a rise of 1.5% q/q.

Business investment rose 4.5% q/q in Q4, the first increase in three quarters following -2.4% in Q3. The median forecast was for a 3.1% rise.