REPEAT:MNI INSIGHT:BOJ Sees Solid Exports, Eyes Weak Imports

Repeats Story Initially Transmitted at 07:24 GMT Nov 20/02:24 EST Nov 20

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials expect exports to continue supporting

Japan's modest economic recovery in the October-December quarter but they are

also cautiously watching whether the recent weakness in imports suggests a

slowdown in domestic demand.

     The real export index calculated by the BOJ based on the trade data

released Monday by the Ministry of Finance showed a 2.6% month-on-month rise in

October, recovering about half of the 5.4% drop in September. The index dipped

0.2% compared with July-September, when it rose 1.9% on quarter.

     Details of the real trade indexes are due out Friday.

     BOJ officials expect exports to remain on a pickup trend as Japan maintains

its competitive edge over other economies in the production of semiconductor

producing equipment and capital goods (machinery used for investment in

equipment). Global demand for these goods is likely to stay firm for now, they

believe.

     Ministry of Finance trade statistics show Japanese exports rose 14.0% on

year in October, marking the 11th straight year-on-year rise following +14.1% in

September but coming in weaker than the MNI median economist forecast of +16.0%.

     BOJ officials believe the 1.4% year-on-year drop in Japanese exports of

automobiles to the key U.S. market in October was due to a delay in shipments

caused by a hurricane, and that there are indications that U.S. demand for

vehicles remains solid.

     The BOJ's real import index gained 1.7% in October after falling 3.8% in

September. It slipped 0.7%, compared with July-September, when the index fell

1.7% from the previous three months.

     The MOF data showed imports increased 18.9% for the 10th straight

year-on-year rise after +12.0% in September. The pace of increase was slower

than the MNI median forecast of +21.3%.

     BOJ officials are analyzing whether the recent weakness in imports

indicates slower domestic demand and, if so, whether it will weigh on factory

production, which has supported Japan's modest but sustained economic recovery.

     In October, imports of telephones (mostly smartphones) rose 11.8% on year

after slumping 34.4% in September, but the rebound didn't fully recover the

large drop. Telephones imported from China increased 4.2% on year in October,

compared with the 37.9% drop in September.

     In the July-September quarter, orders for the latest smartphone models were

slow, as some customers waited for the November release of the iPhone X instead

of rushing to buy the iPhone 8, which went on the market in September.

     This and bad weather caused private consumption, which accounts for about

60% of GDP, to fall 0.5% on quarter in Q3. It was the first drop in seven

quarters after +0.7% in Q2 and pushed down overall growth by 0.3 percentage

point.

     The long stretch of rainy days and typhoon weather hurt tourism and

restaurants while replacement demand seen in April-June for automobiles

purchased with government fuel efficiency subsidies faded in July-September.

     Some government officials suspect the economy's modest but sustained

recovery may be running out of gas.

     At this point, BOJ economists believe imports will rise on an increase in

domestic demand but predict the pace of import gains will remain only moderate

due to a downtrend in purchases of raw materials, reflecting an improvement in

energy efficiency.

     A single-month indicator doesn't prompt the BOJ to change its assessment of

the economy. BOJ economists are focused on quarter-to-quarter changes to gauge

the underlying trend of economic indicators.

     BOJ economists expect exports to increase moderately in the coming months,

and watching how the real export index will perform in the fourth quarter after

+1.9% in the third quarter and -0.5% in the second quarter.

     The October trade balance came to a surplus of Y285.4 billion (vs. the MNI

median forecast of Y332.3 billion), down 40.7% from a year earlier. It was the

fifth straight month of black ink but was narrower than the surplus of Y667.7

billion in September.

     The drop in Japan's trade surplus in October was due to higher energy

prices in light of the depreciation of the yen as well as the rebound in

smartphone imports.

     Japan's economy for the July-September quarter posted a modest 0.3% rise on

quarter, or an annualized 1.4%, as a rebound in net exports offset a slump in

consumer spending caused by bad weather, data released last week showed. The

median economist forecast was +0.4% q/q, or an annualized +1.6%.

     The seventh straight quarterly expansion in GDP followed unusually strong

growth of an unrevised 0.6% on quarter, or an annualized +2.6% (revised up from

a preliminary +2.5%), in April-June.

     Net exports of goods and services -- exports minus imports and the key Q3

growth driver -- made a positive 0.5 percentage point contribution to total

domestic output, as largely expected (the median forecast was +0.4 percentage

point). It was the first positive contribution in two quarters after pushing

down Q2 GDP growth by a revised 0.2 percentage point.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

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

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com