MNI REVIEW: BOJ Trims Overseas Outlook, Keeps Recovery View

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan voted 7-2 vote to continue with yield curve

control and asset purchases, lowered its assessment of exports, industrial

production and the global economy, but maintained their view that Japan is still

expanding moderately, despite the heightened downside risks.

     The BOJ board maintained the overall moderate expansion assessment, noting

the "virtuous cycle from income to spending" was still operating, adding that

the economy "is likely to continue its moderate expansion".

     In the wake of weaker data, the BOJ lowered its assessment of exports and

industrial production, reflecting slowing economies in China and Europe.

     --LOWERS EXPORTS, OVERSEAS ECON

     "Exports have shown some weakness recently," the BOJ said, moderated from

the previous statement saying they were "on an increasing trend."

     "Industrial production has been on a moderate increasing trend, although it

has shown some weakness recently," the BOJ said, adding moderate. It also said,

"Overseas economies have been growing moderately on the whole, although

slowdowns have been observed", revised from "growing firmly."

     The BOJ see weaker exports for the time being, although expected to be on a

moderate increasing trend, with "overseas economies growing moderately on the

whole".

     --DOMESTIC DEMAND VITAL

     Despite heightened downside risks to both the economy and prices, the BOJ

expects domestic demand to remain solid, supporting the virtuous cycle from

profits to spending. However, there is a growing perception that slowing

overseas demand will eventually hit at home.

     A stronger yen remains the most troublesome factor for the BOJ, as it will

quickly impact on households' and firms' sentiment, impeding spending and

damaging the virtuous cycle.

     BOJ economists are also paying attention as to how slowing exports will

affect capital investment plans in fiscal 2019 to study the sustainability of

the virtuous cycle.

     --CAPEX FY2019 EYED

     Initial capital investment plans will be available in the BOJ March Tankan

business sentiment survey due out on April 1 and any pullback due to the China

slowdown could become apparent then.

     The BOJ's quarterly branch managers' meeting is scheduled on April 8, when

capex will be discussed and then policymakers may face the challenge of

considering additional easy policy at the April 24-5 meeting.

--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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