REPEAT: MNI ANALYSIS: Stocks, Weather Risks for Japan Growth

Repeats Story Initially Transmitted at 06:34 GMT Feb 14/01:34 EST Feb 14

--Rising Energy Costs Cut Japan's Purchasing Power

By Max Sato

     TOKYO (MNI) - The stock market sell-off and severe winter weather are

posing a near-term threat to sustained economic recovery in Japan, where labor

shortages and rising costs are already hampering a smooth pickup in business and

consumer confidence.

     Japan's economic growth slowed in the final quarter of 2017 to a cruising

speed after posting unusually strong gains in the previous two quarters.

     Government and central bank officials are cautiously optimistic about the

sustainability of the current lukewarm recovery, citing improving employment and

income condition as well as recovering global growth.

     Japan's real GDP marked the eighth consecutive quarterly expansion in

October-December, the first in 28 years, but it now faces potentially crippling

effects of investor risk aversion and heavy snow falls in some Japanese regions.

     --STOCK PULLBACK RISK

     "If there is a fear about the future, companies tend to become more

cautious about investment and households may delay purchases," a senior Cabinet

Office official told MNI. "It is unknown whether the drop in sentiment will

actually lead to lower investment and consumption in January-March, but it is

possible."

     Japan's economy for the October-December quarter posted a modest 0.1% rise

on quarter, or an annualized 0.5%, as a rebound in private consumption and solid

capital investment offset the weak net exports and the drop in public works

spending, data released Wednesday showed.

     It followed strong growth of 0.6% on quarter, or an annualized +2.2% in

July-September, and 0.6% q/q, or an annualized 2.5% in April-June.

     --LOWER PURCHASING POWER

     Among soft spots, the gross national income (GNI) suffered the first

quarter-on-quarter decline in three quarters in October-December, when it

contracted a real 0.3%, or an annualized 1.1%, in light of rising energy and

community prices.

     The trading loss pushed down the GNI by 0.3 percentage point in Q4.

     "It is not in a danger zone yet, compared to the trading loss's negative

0.7 percentage point contribution to the GNI in Q3 of 2008 at the peak of a

spike in global crude oil prices, but rising costs will cut Japan's purchasing

power," the official said.

     In the near term, the severe winter weather that has caused casualties and

damage is expected to linger, threatening to hurt business sentiment further.

     Freezing temperatures and heavy snowfalls, combined with rising fuel and

food prices, hammered many Japanese regions, hurting the current sentiment in

various sectors, the Economy Watchers Survey for January released last week

showed.

     The Watchers sentiment index for the current economic climate slumped 4.0

points to a six-month low of 49.9 in January on a seasonally adjusted basis

after slipping 0.2 point in December.

     It was the second straight month-on-month drop and the largest fall since

April 2014, when the index plunged a whopping 15.7 points to 38.4 after the

sales tax was raised to 8% from 5% that month, causing a prolonged slump in

consumption.

     --WOBBLY SENTIMENT

     Sentiment could slip further because the results of the latest survey,

which was conducted from Jan. 25 to Jan. 31, didn't reflect the global stock

market sell-off that began in early February.

     The key index in the Consumer Confidence Survey was unchanged at 44.7 in

January after slipping 0.2 point in December, data released on Jan. 31 showed.

The next survey conducted around Feb. 15 may also show a pullback.

     "A continued drop in stock prices and fears of a more cautious stance of

wage hikes could lower overall confidence," another Cabinet Office official told

MNI.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com