WRAPUP 2-Tepid exports cloud Japan outlook, more BOJ stimulus seen after sales tax rise

Wed Mar 19, 2014 2:49am EDT

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(Adds comments from BOJ Kuroda and BOJ Kiuchi)
    * Feb exports +9.8 pct y/y vs f'cast +12.4 pct
    * Trade deficit Y800 bln, vs record Y2.8 trln in Jan
    * Business mood seen down after sales tax rise in April
    * Exports seen key to helping growth after tax hike
    * BOJ's Kiuchi warns on exports, consumer spending
    * Analysts expect BOJ further stimulus by summer - poll

    By Tetsushi Kajimoto and Stanley White
    TOKYO/OTSU March 19 (Reuters) - Japan's annual export growth
in February was short of market expectations and a Bank of Japan
policymaker warned about the outlook as the world's
third-largest economy faces a sales tax hike next month that
could dent economic activity.
    The weaker-than-expected trade data comes after a Reuters
poll showed that business confidence was largely steady in
March, but is expected to slide after the sales tax is raised to
8 percent from 5 percent on April 1.
    Tepid export growth has been a concern for policymakers, who
are counting on stronger shipments to help cushion any slide in
domestic consumption after the sales tax rise.
    Some market watchers, however, including a central bank
board member, doubt there will be an early recovery in exports.
    BOJ board member Takahide Kiuchi warned that exports could
continue to disappoint and that consumer spending could weaken,
but said he did not think additional policy easing would help
the economy in the long-term. 
    Exports rose 9.8 percent in February from a year earlier,
following a 9.5 percent gain in the previous month, as shipments
of cars to China and Asia recovered from a Lunar New Year
slowdown, Ministry of Finance (MOF) data showed.
    The modest rise compared with a 12.4 percent gain expected
by economists in a Reuters poll, with U.S.-bound shipments
slowing sharply, due in part to a cold wave there. In terms of
volume, exports increased 5.4 percent in February.
    "Overall, exports remain sluggish and the situation is
severe," said Takeshi Minami, chief economist at Norinchukin
Research Institute in Tokyo.
    "Considering that one cannot expect 4-5 percent growth in
the United States and Chinese growth remains tepid, both of
which will weigh on Asian economies and Japan's exports. You
cannot rely on such a rosy scenario that exports could offset
the impact of a sales tax hike."
    Lack of export growth could compel the central bank to
announce further monetary stimulus, while the government may
resort to more fiscal stimulus to prop up the economy as soon as
the summer, Minami said.
    The central bank will ease policy again by July as prospects
for higher inflation remain remote and the outlook for the
economy weakens, a Reuters poll found. 
    At a policy review last week, the BOJ maintained its massive
monetary stimulus and kept its upbeat view on the economy,
although it downgraded its assessment for exports, saying that
they have levelled off. 
    
    
    TEPID EXPORTS
    BOJ Governor Haruhiko Kuroda reiterated in a speech on
Wednesday his confidence that the economy and consumer prices
are on track, but exports continue to be a cause for concern.
 
    Despite a sharp fall in the yen since late 2012,
which has pushed up the cost of imports, there has not been a
equivalent boost in exports, in part because of exporters'
reluctance to cut prices.
    Kiuchi said he saw a high hurdle for additional quantitative
easing as the risks to the economy from increasing government
bond purchases would outweigh the benefits.
    Kiuchi also said if the yen weakens further it could make
imports too expensive and slow consumer spending, which would be
a negative for the economy.
    "I personally pay closer attention to downside risks,"
Kiuchi, a pessimistic member of the BOJ board, said in a speech
to business leaders in Otsu, western Japan.
    "I am paying particular attention to developments in exports
and consumption as downside risks to the economy."
    Imports grew 9.0 percent in the year to February, versus
expectations for a 7.4 percent gain, due to firm demand for
liquefied natural gas, electronics parts from China and cars
from Germany.
    That resulted in a trade gap of 800.3 billion yen ($7.90
billion), a record for the month of February, although it was
well below January's record trade gap of 2.79 trillion yen.
          
    POLL'S WORSENING SENTIMENT
    Export weakness was not reflected in confidence at Japanese
manufacturers, which held steady at plus 18 in March, while
non-manufacturers' mood edged up to a record high of plus 31 as
consumers brought forward purchases to beat the sales tax rise,
a Reuters poll found on Wednesday.
    However, the monthly Reuters survey, which closely
correlates with the Bank of Japan's tankan, showed both sectors'
sentiment indexes are expected to slide to plus 12 and plus 14,
respectively, in June.
    A total of 255 firms responded to the Reuters poll of 400
big- and medium-sized firms conducted March 3-14. Indexes are
calculated by subtracting the percentage of pessimistic
responses from optimistic ones.
    The BOJ will release its March quarter tankan on April 1.
    Any weakness in the BOJ tankan would increase calls for
additional stimulus from the BOJ, even though the central bank
has said the economy should be able to weather the tax rise.
    Policymakers and many private-sector economists expect the
economy to slow temporarily in the April-June quarter after the
tax rise, before rebounding in July-September.
    ($1 = 101.3650 Japanese yen)

 (Editing by Eric Meijer & Kim Coghill)
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