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Ending QE Early Would Be Hawkish... Right?

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MNI (London)
--New Capex 'Function' To Highlight Corporate Investment Intentions
     TOKYO (MNI) - Already slowing, Japan's exports may fall further in coming
months, according to the Bank of Japan's newly published Surveillance Indices
for Critical Overseas Perils to Exports (SCOPE), the full text of the quarterly
Outlook Report released Thursday showed.
     The BOJ has developed the index in order to monitor risks for exporters as
concern grows over the global economy. The report said, "interviews with firms
conducted by the BOJ's head office, branches and local offices reveal their
growing concern about overseas economies."
     The BOJ highlighted about 250 economic indicators as possible candidates
for inclusion in the index and selected 18 indicators with superior predictive
     The 18 indicators include global manufacturing PMI, world vehicle sales
data, University of Michigan Surveys of Consumers and the Output of Metal
Shaping Machinery in China.
     "Looking at the current situation, the share of indicators emitting signals
remains at a low level. However, indictors such as the Output of Metal Shaping
Machinery in China are clearly below their threshold values and the new export
orders index of the Global Manufacturing PMI also has fallen close to the
threshold value," the report said, indicating the possibility is increasing that
Japan's exports may fall.
     The report also said that capital investment is likely to maintain an
increasing trend even if its pace of increase decelerates.
     "Current fixed investment is above the long-run equilibrium value and has
entered a phase in which stock adjustment pressure pushes down fixed
investment," it said.
     The report, however, said, "the degree of stock adjustment pressure is
fairly small compared to the period around the global financial crisis from
around 2006 to 2008, when the potential growth rate dropped sharply."
     The BOJ also published their new "capital investment function", which is
intended to help explain the outlook for capex.
     "In this function, the long-run equilibrium value of fixed investment is
determined by components such as real GDP, the cost of capital and the potential
growth rate."
     MNI reported on Nov. 22 that the BOJ will likely introduce a new data set
alongside the January Outlook Report to try and gauge the level of corporate
capital investment going forward.
     The BOJ's so-called "capital investment function" will focus on corporate
profits, the expected economic growth rate and potential economic growth rate to
judge how much capital investment will be implemented and to examine how it
deviates from the long-term averages, indicating cyclical adjustments.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
MNI London Bureau | +44 203-865-3812 |
MNI London Bureau | +44 203-865-3812 |
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