MNI: BOJ September Tankan: Sentiment Improves, Capex Plans Up

Business sentiment improved among major manufacturing businesses from three months ago, reflecting solid demand for IT-related goods, the Bank of Japan's September Tankan business sentiment survey published on Friday showed.

Major non-manufacturers, mainly the face-to-face services, also showed improved confidence, marking a fifth straight rise for both categories. A stepped-up vaccine rollout has helped with the latest reading on business confidence that comes as Japan is ready to name a new prime minister on Monday and hold elections likely in November.

The diffusion index for sentiment among major manufacturers stood at +18 in September, up from +14 in June, although the median forecast was +15. The index is projected to fall to +14 in December, and compared to expectations of muted sentiment, see: MNI: BOJ Sept Tankan To Show Sentiment Muted In Key Businesses.

The survey also may ease some concerns on capex spending ahead of the October BOJ monetary policy review.

But the Tankan highlighted a worsening of sentiment among automobile industries in both smaller and major firms.

SENTIMENT BREAKDOWN

The sentiment index for smaller manufacturers rose to -3 in September from -7 in June, the fifth straight rise. The index is expected to worsen to -4 in December.

The sentiment index for major non-manufacturers rose to +2 in September from +1 in June, the fifth straight rise. The index is projected to rose to +3 three months ahead.

The sentiment index for smaller non-manufacturers stood at -10 in September, down from -9 in June, for the first drop in five quarters and is projected to worsen to -13 in December.

The Tankan also showed capital investment plans by both major and smaller firms this fiscal year were above the average of historical data. The average dollar/yen exchange rate assumed by major manufacturers this fiscal year was JPY107.64, compared with JPY106.71 in June, while the average euro/yen exchange rate was JPY126.50, compared with JPY123.27 in June.

Also see: MNI BRIEF: Inflation Outlook Rises Among Firms: BOJ Sept Tankan.

Business investment plans by major firms in fiscal 2021, key to a pickup in domestic demand, are projected to rise 10.1% on year, compared with +9.6% in June, while capex plans of smaller firms are expected to rise 4.7% this fiscal year, compared with +0.9% at the previous survey.

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.

Data released earlier on Friday showed the unemployment rate held at 2.8% in August from July.