REPEAT: MNI: BOJ Concerned China Stimulus May Miss Target

Repeats Story Initially Transmitted at 02:15 GMT Mar 26/22:15 EST Mar 25

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials are concerned that China's economy

may fail to respond to Beijing's stimulus measures, in turn putting further

downward pressure on Japan's industrial production and exports and increasing

the chances the BOJ will need to consider additional easing measures, MNI

understands.

     The BOJ are pinning their hopes on a positive impact from China's economic

stimulus measures on Japan's exports and industrial production, and the latest

'Opinions' from the March 14/15 meeting maintained the baseline economic

recovery scenario.

     --RISKS GROWING

     However, there is a growing understanding of the risks if China's recovery

is slower than expected, including the possibility that the BOJ will conduct

further easy policy, despite the concerns over building side-effects from

current policy.

     Japan's exports and industrial production are expected to remain weak in

both Q1 and Q2, with BOJ economists expecting a boost from a China pick-up in

the second half of 2019.

     But Japan's exposure to China and the greater Asian region leaves the

economy at risk if the Chinese economy is slow to respond to stimulus. According

to BOJ data, almost 55% of Japan's exports go to Asia -- 19.5% to China and a

combined 35.4% to Newly Industrializing Economies (NIEs) and Association of

Southeast Asian Nations (ASEAN).

     BOJ Governor Haruhiko Kuroda has previously stated an optimistic outlook

over Beijing's stimulus plans, but there is a growing view amongst Bank

officials that the impact of the measures will not produce the required effect,

given China still suffers from structural issues, including heavy debt loads at

firms and municipalities.

     These debt levels are a concern, with China's commercial banks cautious in

extending new loans, adding to their risk profile as their existing

non-performing loan risks grow. Local governments are in a similar position,

unwilling to increase their debt levels despite clearance from Beijing to up

bond issuance this year.

     --BOJ CONCERNS

     Weakness in China - and Europe - pushed the BOJ to lower its assessment of

both exports and industrial production in the wake of weaker data, although

maintaining the overall economic assessment, saying "Japan's economy is

expanding moderately, with a virtuous cycle from income to spending operating."

     Officials expect domestic demand to remain solid, supporting the virtuous

cycle in the coming months while the global economy remains weak, but there is a

growing perception that slowing overseas demand will eventually hit at home.

     To add to the concerns from overseas, renewed volatility in financial

markets is also a concern, with slumping stocks likely to hit both corporate and

household sentiment, further dampening their spending.

     The Nikkei 225 stock index ended Monday's session down 3.01% at 20,977,

although early trade Tuesday saw some of those losses recouped.

--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