WRAPUP 1-Japan output, CPI mark more pain; BOJ view questioned

(For more stories on the Japanese economy, click [ID:nECONJP])

* Sept output down 1.9 pct vs forecast 0.6 pct drop

* Manufacturers expect to trim output in October – govt

* Core consumer prices mark 19th straight annual declines

* Analysts say data suggest BOJ outlook too optimistic

By Tetsushi Kajimoto and Leika Kihara

TOKYO, Oct 29 (BestGrowthStock) – Japan’s weak output, price and
spending figures showed on Friday how the economy was
struggling to cope with a strong yen and cooling foreign
demand, raising doubts about the central bank’s relatively
assured outlook.

Industrial production fell for the fourth straight month in
September and the drop was deeper than expected, household
spending fell from August and core consumer prices fell for the
19th month in a row.

Furthermore, manufacturers surveyed by the Ministry of
Economy, Trade and Industry expect the slump to deepen this
month with output falling 3.6 percent after a 1.9 percent
decline in September. [ID:nTOE69S00D]

That led the government to say output was on a weakening
trend, even though companies expect output to rise again next
month and last month’s slump is largely blamed on the expiry of
subsidies for low emission cars.

Such solemn view contrasts with the Bank of Japan’s more
upbeat outlook published on Thursday. Its forecasts that
economic growth would slow only slightly to 1.8 percent in the
next fiscal year from 2.1 percent in the current year to March
2011 as well as its view that consumer prices will inch up next
year, raised eyebrows.

“Judging from the data, the economy is already entering a
downturn. This shows the economy won’t perform as well as the
Bank of Japan predicted yesterday,” said Takeshi Minami, chief
economist at Norinchukin Research Institute.
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Graphic on Japan CPI: http://link.reuters.com/jev72q

Graphic on industrial output:
http://link.reuters.com/fax72q

Text of BOJ statement on monetary policy:
http://www.boj.or.jp/en/type/release/adhoc10/k101028.pdf

More stories on the Japanese economy: [ID:nECONJP]

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Governor Masaaki Shirakawa has made plain that the BOJ was
ready to ease policy further if necessary. The central bank
fleshed out the details of its 5-trillion yen ($61 billion)
asset buying plan agreed earlier this month, but further
deterioration of economic conditions could pressure the BOJ do
more.

One shock might come as soon as next week in the form of
the yen’s rally past its record highs if the U.S. Federal
Reserve decides at its Nov. 2-3 meeting to pump more dollars
into the economy than markets are now pricing in.

TARGETED ACTIONS

The Bank of Japan’s decision to move the next meeting from
mid-November to Nov. 4-5 was taken by markets as a precaution
in case the BOJ needed to respond to Fed action even as
Shirakawa insisted the schedule change had nothing to do with
the Fed.

But even if there is an increase in the pool of funds, the
amounts are small change compared with hundreds of billions of
dollars the Fed may be considering. [ID:nN25168493]

However, the prevailing view within the BOJ is that its own
five-year campaign of flooding banks with cash, which lasted
until March 2006, did little to stimulate growth. Therefore,
ever since the outbreak of the crisis the central bank has been
experimenting with smaller-scale, more targetted steps.

The pledge to keep rates pegged to the floor as long as
there is no end of deflation in sight aims to prevent long-term
bond yields, and thus actual costs for borrowers, from rising.

And by lowering by one notch the required rating of
corporate bonds in its current scheme to BBB, the lowest
investment grade, the central bank says it hopes to encourage
investors to take on more risks and help companies with weaker
credit standing.

The BOJ also plans to buy riskier assets like
exchange-traded funds and real estate investment trusts, which
needs government approval. Finance ministry officials have said
they will give approval as soon as possible.

In the past the BOJ has announced lending schemes targeting
specific industries with higher-than-average growth potential.

Critics say, however, all that lacks scale needed to curb
the yen’s strength, now the main threat for Japan’s
export-dependent economy, and nothing short of a full-blown
quantitative easing with large-scale government bond buying
will work.
(Additional reporting by Stanley White and Kaori Kaneko;
Writing by Tomasz Janowski; Editing by Kazunori Takada)

WRAPUP 1-Japan output, CPI mark more pain; BOJ view questioned