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Repeats Story Initially Transmitted at 05:35 GMT Feb 21/00:35 EST Feb 21
By Hiroshi Inoue
     TOKYO (MNI) - Weaker than expected sales to China in January may force the
Bank of Japan to trim its outlook for exports, and through into capital
expenditure plans, although it still sees a solid U.S. economy supporting
overall demand, MNI understands.
     The BOJ currently sees exports as on an uptrend, but it could tweak that
view at the March 14-15 policy meeting. Weakening global demand for Japanese
capital goods will also undermine the BOJ view that investment will continue on
an upward trend.
     The BOJ's real export index, calculated from Ministry of Finance data,
slumped 5.3% on month in January after a revised 1.1% gain in December. The weak
January reading further dents the BOJ view that exports will fuel a moderate
increase in capital investment, two factors bank insiders see as key drivers of
a sustainable recovery.
     Exports to China were expected to pick up in January, helped by strong
demand ahead of the Lunar New Year, before slowing in February, as the holiday
keeps Chinese industry closed for at least a week. However, they fell a steep
17.4% y/y, accelerating from the 7% y/y fall seen in December.
     The sharp slowdown in January has bank economists concerned over the
outlook for this month and the first quarter overall, as exports look more
affected by the slowing Chinese economy and uncertainties over the global
     However, they still see the U.S. economy as supportive of Japan's exports
and helping underpin the economy. Sales to the States showed a fourth straight
month of y/y gains in January, with exports of motor vehicles up 12.9% and
construction machinery up 27%. 
     While the data indicates demand for autos and capital investment remains
solid for now, there may be some concern that recent moves in Washington could
hamper auto sales later in 2019. On Feb 17, the Commerce Department sent a
report on auto tariffs to President Donald Trump that could ultimately lead to
steeper taxes on imported cars and parts.
     Both export data and real export index historically fluctuate sharply in Q1
due to a combination of the Chinese New Year and domestic seasonal adjustments,
making it difficult for the BOJ to see the underlying trend. 
     The real export index rose 1.3% q/q in Q1, revised from +1.2%, after
falling 1.9% in Q3. Expectations were for a continued bounce back in Q1, but
that now looks unlikely.
     Overall, Japan's exports fell 8.4% y/y in January for a second straight
drop. It was the biggest drop since October 2016's 10.3% y/y decline.
     At present, the BOJ maintains the view that "exports will likely continue
their increasing trend for the time being, as those of capital goods and
IT-related goods -- in which Japan has a comparative advantage -- are likely to
be firm with global production."
     If Japan's exports of capital goods and IT-related goods continues to slow,
Japan's economy will lose that momentum, further pressuring the BOJ's current
     The BOJ releases the details of its real trade indexes on Monday.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email: