REPEAT: MNI INSIGHT: BOJ Sees Sustained Eco Pickup; Exports Up

Repeats Story Initially Transmitted at 11:16 GMT Oct 19/07:16 EST Oct 19

By Hiroshi Inoue

     TOKYO (MNI) - Although Japanese growth likely slowed from the second

quarter, the nation's economy expanded at a moderate pace in the third quarter

and will continue to do so in the quarters ahead, supported by both foreign and

domestic demand, the Bank of Japan believes.

     The economy's momentum is strengthening steadily with both exports and

industrial production the main drivers of growth, central bank officials

believe.

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

released by the Ministry of Finance earlier in the day showed a 5.4%

month-on-month drop in September after rising 3.0% in August and 1.7% in July.

     However, the real export index for the third quarter was up 1.9% on

quarter, following a 0.5% q/q drop in the April-June period and a 2.8% gain in

the first quarter, according to MNI calculations.

     BOJ officials don't put too much weight on the drop in the September real

export index, focusing on the quarter-on-quarter change to gauge the underlying

trend.

     The contribution of net exports to gross domestic product is expected to

turn to positive in the third quarter from the negative contribution of 0.3

percentage point in the second quarter.

     Details of the real trade indexes are due out next Tuesday, but the rebound

in the third quarter is believed to have been led by firmer shipments of

smartphone parts, other information technology goods and autos after what both

BOJ officials called a temporary slump in April-June.

      "Japan's economy is well supported by balanced domestic and overseas

demand. It is unlikely that Japan's economic growth in the third quarter exceeds

a 2.5% growth (on an annualized basis) in the second quarter. But a steady

growth above Japan's potential growth (of 0.8% as estimated by the BOJ) is

highly likely to have continued in the third quarter," a person familiar with

BOJ thinking said.

     The person added that if one of the major economic components -- exports,

private consumption, capital investment or public works spending -- loses

stream, the other components are likely to compensate.

     The Cabinet Office will release third quarter GDP data on Nov. 15.

     Japanese exports rose 14.1% on year in September, generally in line with

expectations (the MNI median economist forecast was for +14.9%). It was the 10th

straight year-on-year increase after +18.1% in August.

     Imports gained 12.0% on year vs. the MNI median forecast of +14.6%,

marking the ninth straight year-on-year rise after +15.2% in August.

     The September trade balance came to a surplus of Y670.2 billion, which was

larger than the MNI median forecast for a Y565.1 billion surplus. It was the

fourth consecutive month of black ink.

     Private consumption growth during the third quarter is expected to be

slower than in the second quarter but a moderate expansion remains intact.  

     The BOJ's Consumption Activity Index fell a real 0.6% on a seasonally

adjusted basis in August, the first drop in two months after rising 0.4% in

July.

     The July and August data indicate that the index for the third quarter is

expected to slow from the second quarter, when it was up 0.9% on quarter. This

was the second straight quarterly rise following a 0.8% gain in the

January-March period.

     Any slowing of the consumption index in the third quarter could well be a

reaction to the strong gains in previous quarters, the BOJ believes.

     Some BOJ branch managers reported at their quarterly meeting last week that

the pickup in private consumption is expanding, with the focus on how

sustainable it will be. 

     The BOJ's consumption indicator reflects a wide range of sales and

supply-side statistics on goods and services and helps capture the short-term

consumption trend, and it has a close correlation to final gross domestic

product figures.

     The recent government consumer survey indicated that consumer confidence

rebounded in September but BOJ economists are cautious about the performance of

private consumption in September.

     Industrial production rose 2.0% on month in August, the first

month-on-month rise in two months following a 0.8% fall in July.

     Industrial production is expected to fall 1.9% (revised up from -3.5%

initially predicted) in September and then rise 3.5% in October, according to

the government forecast based on its survey.

     But the government predicted the 1.9% fall initially reported for September

will be revised up to about a 1.4% fall, meaning that industrial production for

the third quarter is expected to rise on quarter for the sixth straight quarter

following gains of 2.1% in the second quarter and 0.2% in the first quarter. 

     The economic data already released have been encouraging, with the pickup

in private consumption and exports consistent with the BOJ's predictions in

July, central bank officials believe.

     Japan's moderate economic expansion is progressing as smoothly as the BOJ

board expected and the central ban's focus remains on when consumer prices

accelerate in response to a continued growth and tight labor supply.