MNI POLICY: New BOJ Index Signals Exports May Fall

--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

performance.

     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.

     --CAPITAL INVESTMENT ON TRACK

     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."

     --OUTLOOK

     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: hiroshi.inoue@marketnews.com

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

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