REPEAT: MNI: BOJ Capex View Overshadowed By Weak Export Index

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.

     --CHINA SURPRISE

     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

demand.

     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.

     --SLOWER INVESTMENT

     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

outlook.

     The BOJ releases the details of its real trade indexes on Monday.

--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