MNI: BOJ June Tankan: Key Sentiment Drops, Solid Capex Plans

Japanese business sentiment worsened from three months ago, for the second straight drop, hit by higher costs caused by higher commodity prices and the yen’s fall, the Bank of Japan's June Tankan business sentiment survey published on Friday showed.

But the business sentiment among major non-manufacturers, mainly the face-to-face services, improved for the first time in two quarters as economic activity resumed after the government lifted the state of emergency, (see: MNI: BOJ Tankan Expected To Show Downbeat Manufacturing-Survey).

The diffusion index for sentiment among major manufacturers stood at +9 in June, down from March and the lowest level since March 2021. The median forecast was +12. The index is projected to rise to +10 in September. The sentiment index for major non-manufacturers rose to +13 in June, for the highest level since December 2019. The index is projected to stand at +13 three months ahead.

The sentiment index for smaller manufactures was unchanged at -4 in June. The index is expected to fall to -5 in September.

Business investment plans by major firms in fiscal 2022, key to a pickup in domestic demand, are projected to rise 18.6% on year, compared with +2.2% in the March Tankan. Capex plans by smaller firms fell 1.4% y/y, up from -11.4% in March as the plans tend to be revised up gradually after starting a minus plan at the beginning of fiscal year.

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 the majority of firms see better business conditions.