MNI PREVIEW: BOJ On Hold; No Change In Overall Economy Outlook

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan will likely keep monetary policy unchanged

this week, as neither recent data nor the December Tankan survey will affect its

view that domestic demand remains solid, MN understands.

     Although standing pat, leaving interest rates, forward guidance, QQE and

yield curve control measures unchanged, the BOJ will continue to press the view

that there are still considerable downside risks to both the economy and prices

and it needs to provide pre-emptive accommodation.

     The BOJ's December Tankan business sentiment survey showed that the

virtuous cycle from profits to spending remains in place, underlining the

central bank's view that the economy will recover around the middle of 2020.

     BOJ economists are still eyeing the outlook for industrial production,

exports and private consumption as there is still no clarity to the underlying

trend until the tax hike and the impact from Autumn's natural disasters play

through, waiting for the data into Q1 to offer a guide.

     The BOJ will review its medium-term outlook for growth and inflation at the

January 20-21 policy-setting meeting.

     --DATA WATCH

     Before amending its baseline scenario, the BOJ will need to see some change

in the outlook for industrial production, private consumption and exports.

     Industrial production is expected to recover in November after October's

slide, but BOJ economists will watch closely to see the scale of the bounce back

after the problems from the previous month.

     Secondly, they will be looking for signs exports look like moving onto a

moderate recovery path in or after the first quarter, as they see global demand

for autos flatlining, but demand for capital investment machinery and IT-related

goods are picking up.

     Thirdly, bank officials will look to see how private consumption holds up

as the tax hike bites and real incomes slow.

     With the chances a 'phase one' trade deal between the U.S. and China

looking more likely in coming days and stable global financial markets, the BOJ

hopes it will help slow a deterioration in business sentiment.

     The BOJ is also paying attention to whether inflation expectations weaken

amid sluggish consumer prices and slow corporate retail price hikes.

     BOJ economists also expect the tightness in the labour market for

manufacturers eased a little in recent months as exports slowed, but overall,

conditions remain solid and won't change too much.

     Despite some optimism over the outlook domestically, the BOJ is still on

edge over the downside risks, particularly if the global economy fails to

recover its poise in early 2020.

--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

[TOPICS: MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]