Economic data released from Japan today are not bad. Based on the results of the Tankan survey, it’s unlikely for BoJ to ease monetary further. Yet, it’s not time for the central bank to start stimulus exit too.

• Large manufacturing index was unchanged at 19 versus expectation of a drop to 17.
• Large manufacturing outlook dropped notably by -4 to 15, missed expectation of 16.
• Large non-manufacturing index rose 2pts to 24, above expectation of 21.
• Large non-manufacturing outlook also rose 2pts to 24, above expectation of 20.
• Large all industry capex rose 14.3% in Q4, beat expectation of 12.7%.

PMI manufacturing improved to 52.4, up from 52.2 and beat expectation of 52.3. Markit noted that “new order growth accelerates despite exports declining to sharpest extent in over two years”. However, “business confidence drops for seventh straight month to lowest since October 2016”.

Joe Hayes, Economist at IHS Markit, said in the release that “Japan’s manufacturing sector closed 2018 with a strong finish.” But the data also “bring some cautious undertones to the fore,”. In particular “Export orders declined at the fastest pace in over two years, while total demand picked up only modestly. Confidence also continued to fall, a seventh straight month in which this has now occurred.” He added “the prospects heading into 2019 ahead of the sales tax hike still appear skewed to the downside.”

BoJ Governor Haruhiko Kuroda said today, “there’s quite a distance from the 2% inflation target. It is still too early now to consider normalizing policy.” “Unlike the Western countries, inflation is extremely low and inflation expectations remain very low,” he added. “We’re in a phase to patiently continue large-scale monetary easing.”

BoJ’s balance sheet has grown the equivalent of 135% of GDO . But Kuroda said “I don’t think expansion of the BoJ’s assets will affect our ability to keep monetary policy and financial system stable.” Though, he added it’s important for the government market confidence on the country’s fiscal health in the medium- to long-term.

BoJ board member Hajime Takata said said in a speech today, “now is the time where the BOJ must scrutinise whether the economy and prices can achieve a sustained, positive cycle.”

“While we need to be mindful of the impact of our massive stimulus program on market function, we’re at a stage where we need to patiently maintain monetary easing,” he said.