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MNI INSIGHT: Capex Trend A Concern For BOJ Rebound Outlook

MNI (Tokyo)

Capex plans for automobile makers may not rebound quickly from supply-chain disruptions, and non manufacturers face higher costs.

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Bank of Japan officials are focused on whether capital investment plans will remain solid in the September Tankan for automobile makers and related firms that continue to grapple with supply chain disruptions, MNI understands.

Bank officials are also monitoring whether higher international commodity prices are affecting non-manufacturers' and smaller firms' corporate profits, and possibly dampening capital investment plans.

The BOJ will release the outcome of its Tankan quarterly business survey for September conducted from early August to September 30 at 0850 JST on Oct. 1, Friday (2350 GMT on Sept. 30, Thursday). The outlook will feed into the next policy review and outlook in October, see: MNI STATE OF PLAY: Evolving Risks, Data Vital For BOJ Oct Meet.


Transport equipment accounts for about 20% of Japan's total output with the auto industry alone accounting for about 3% of Japan's GDP.

But earlier this month the Cabinet Office lowered its main economic assessment from the previous month for the first time since May and also lowered its assessment on private consumption and industrial production.

A slowdown threatens a forecast baseline virtuous cycle from profits to spending in the corporate sector as the economy recovers from pandemic lockdowns with the latest state of emergency slated to end on Sept. 30. The BOJ is expected to be cautious in withdrawing pandemic stimulus measures.

Bank officials now expect a return to pre-pandemic GDP levels in the first quarter of 2022, as earlier estimates of a V-shaped economic recovery in the fourth quarter are unlikely.

The BOJ outlook is that the impact of high costs on major manufacturers will be eased by exports with corporate profits a decisive factors on capex plans.


Capital investment plans by major firms in the September Tankan tend to be slightly revised down from June but capex plans by smaller firms tend to be revised higher in the period.

In the September Tankan 2019, before the pandemic, capex plans by major firms and all enterprises were +6.6% and 2.4%, respectively, revised from +7.4% and +2.3% in the June Tankan.

A revision down in the upcoming survey could undermine the BOJ virtuous cycle view ahead for the corporate sector, increasing downside risks to economy and prices.

The impact of higher commodity import prices and a slowing China may be temporary as global economies recover from pandemic lockdowns, according to the BOJ outlook. But profits at smaller firms and non-manufacturers will be squeezed by high costs, the BOJ warns.