MNI: BOJ Dec Tankan: Major Business Sentiment Flat, Services Up

Japanese major business sentiment was unchanged from three months ago, hit by high costs caused by a weaker yen, the Bank of Japan's December Tankan business sentiment survey published on Monday showed.

But business sentiment among major non-manufacturers, face-to-face services, improved for the sixth straight survey as economic activity resumed after the government lifted the pandemic state of emergency at the start of October.

The diffusion index for sentiment among major manufacturers stood unchanged at +18 in December and below the median forecast of +19. The index is projected to fall to +13 in March. Sentiment for major non-manufacturers rose to +9 in December and the highest since December 2019. The index is projected to fall to +8 three months ahead.

Sentiment for smaller manufactures rose to -1 in December, the sixth straight rise and highest since June 2019. The index is expected to be -1 in March. For smaller non-manufacturers sentiment stood at -4 in December, the highest level since March 2020, and is projected to worsen to -6 in March.

The Tankan also showed capital investment plans by major and smaller firms were above the average historical level.

Business investment plans by major firms in fiscal 2021, key to a pickup in domestic demand, are projected up 9.3% on year, compared to +10.1% in September, Capex plans at smaller firms are expected up 5.1% , compared to +4.7% in the previous survey.

The average dollar/yen exchange rate assumed by major manufacturers this fiscal year was JPY109.09, compared to JPY107.64 in September. The average euro/yen exchange rate was JPY127.71, compared to JPY126.50.

The Tankan diffusion index is calculated by subtracting the percentage of companies reporting deteriorating business conditions from the percentage of those reporting an improvement. A positive figure indicates most firms see better business conditions.