MNI INSIGHT: Data Reinforces BOJ's Stance Despite Factory Gain

Forecasts for higher factory output in July-September are not enough for a robust economic recovery in the near term to allow the Bank of Japan to consider any changes to easy policy as a surge in Covid-19 cases and an expected global economic slowdown amid Fed rate hikes weighs, MNI understands.

Japan's industrial output rose 8.9% m/m in June, data showed on Friday, and is expected to rebound 6.1% on quarter in the July-September period. But other data on retails sales, down 1.4% in June from May, higher Tokyo consumer prices and falling sentiment painted a more downbeat picture. However, job figures remain strong at 2.6% unemployment.

Taken along with other aspects of the domestic and global economic outlook, BOJ officials are concerned that the rate hikes by the Federal Reserve will weaken demand for durable goods and capital goods as Japan’s main exports as they gradually dampen private consumption and impede capital investment.

Slower global growth predicted the International Monetary Fund and for Japan has also added to BOJ concerns. At the same time, MNI understands, there are views that energy prices will not fall as much as initially expected after data showed energy costs jumped 23.5% y/y in July, accelerating from +21.7% in June, (See: MNI STATE OF PLAY: BOJ's Easy Views Intact Despite Higher CPI).

Stronger energy prices could prompt the BOJ to upwardly revise its price views, though the JPY has recently recovered against the USD and no tweaks to policy are expected until at least the appointment of a new governor as Haruhiko Kuroda exits in April of next year.