REPEAT: MNI POLICY: BOJ Still Cautious As Real Exports Weaken

Repeats Story Initially Transmitted at 22:30 GMT Jun 19/18:30 EST Jun 19

By Hiroshi Inoue

     TOKYO (MNI) - Japan's real exports fell in May, undermining the Bank of

Japan's view that solid data in April pointed to an overall recovery in the

sector in Q2, with continued weakness in China and sluggish IT-related demand

again weighing.

     The BOJ's real export index, extrapolated from Ministry of Finance data,

fell 4.4% on month in May after rising a revised 1.5% in April. The index for

April-May period fell 0.4% from the previous quarter.

     The latest Japan trade data showed continued weak demand for chip-making

equipment across Asia - China in particular --and this continues to cause

concern amongst BOJ officials, who see a pick-up in IT-related exports as

essential for a sustained move to a recovery path for Japan.

     Officials still believe that historical IT business cycles suggest the

downward adjustment in the sector may end in the second half of 2019, as that

ties in with the average 5-to-6-month adjustment period in the industry.

     Japan's exports to Asia, accounting for about 55% of the total exports,

fell 12.1% y/y in May for a seventh straight drop. Exports of chip-making

equipment fell 40.5% on year in May, extending a fall of 27.0% in April

     0verall exports to China, accounting for about 20% of the total exports,

dropped 9.7% on year in May for a third straight fall, with the export of

chip-making equipment down 27.5% in May.

     Semi-conductor exports fell again, although at a slower pace than

previously, with sales to Asia and China down 2.7% and 3.4% respectively.

     Overall, Japan's exports -- a main driver for the economy -- fell 7.8% on

year in May for the sixth straight drop following -2.4% in April, leaving a

deficit of Y967.1 billion in May.

     BOJ officials don't expect Japan's economy losing momentum anytime soon as

domestic demand remains buoyant. But continued weakness in global demand could

soon spill over into the domestic economy.

     The BOJ will likely face a challenging assessment of the outlook ahead of

the July 29-30 meeting, when the board releases its quarterly Outlook Report.

--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