REPEAT: MNI PREVIEW: BOJ To Keep Rates On Hold; Await Data

Repeats Story Initially Transmitted at 02:45 GMT Mar 11/22:45 EST Mar 10

--Global Slowdown Main Concern For BOJ Policymakers

By Hiroshi Inoue

     The Bank of Japan is set to keep monetary policy unchanged at its 2-day

meeting that ends Friday, despite signs of a strengthening global slowdown

impacting on the domestic economy.

     Japan's exports and industrial production have both been hit by slowing

Chinese economy and the weaker-than-expected euro area economy, but the BOJ

still sees the domestic economy on a recovery path.

     Although policymakers are unlikely to lower their overall assessment of the

economy, the sluggish data will prompt the board to consider adjusting their

assessment for exports and production, as the first quarter outturn will be

weak.

     There are hopes China's stimulus moves will act as a tailwind for their

economy ahead, but it will not provide a quick boost for Japan's exports.

     --JAPAN SLOWING

     In the light of slower global demand, Japan's economy is expected to slow

somewhat in the first quarter from the revised 0.5% q/q Q4 growth reported next

week, with BOJ officials focused on whether domestic demand holds up.

     How slowing output and export demand hits capital expenditure and the

subsequent flow-through to corporate profits and spending will remain key to BOJ

thinking when assessing the outlook.

     BOJ officials expect the pace of increase in capital investment to

slow-moving forward. An early indication will be seen when the March BOJ Tankan

survey is published on April 1, although a clearer view of spending plans will

show up in the revised June Tankan spending plans.

     Despite reservations over the accuracy of the initial Capex plans laid out

in the March survey, BOJ officials will take note of how the early indications

for fiscal 2019 deviate from historical averages.

     If the Tankan does show weaker investment plans, around 10% lower than

those seen a year ago, the Bank will have increased concerns over the mechanisms

it sees driving the overall recovery.

     --INFLATION RATES

     BOJ officials remain perplexed by current sluggish inflation rates and the

weak outlook for prices, as the continued tightness of the labor market and the

improved economy has had little impact.

     Looking ahead, they warn downward pressure stemming from the drop in crude

oil prices could push core CPI to near zero percent over the summer months,

lowering the inflation expectations, although April hikes in food and beverage

prices could help underpin the upside.

     Reduced volatility in financial markets over recent months is a bright spot

for the BOJ, giving it some protection from an early downgrade of the overall

economic assessment and concerns of a sharper downturn.

     But a return to the weakness seen in global markets around the turn of the

year will quickly worsen both corporate and household sentiment, impede spending

and impact the BOJ's much vaunted virtuous cycle.

--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