MNI: BOJ Tankan: Sentiment Rises, Solid Capex Plans, Backs BOJ

Japanese benchmark business sentiment rose from three months ago, the first rise in two quarters as manufacturers succeeded in transferring higher costs to retail prices, although non-manufacturers were hit by higher costs caused by the weak yen, the Bank of Japan’s June Tankan business sentiment survey released Monday showed.

Major and smaller firms’ capital investment plans remained firm and above average historical levels, supporting the BOJ's view that the beneficial cycle from income to spending continues.

The diffusion index for the sentiment of major manufacturers stood at +13 in June, up from +11 in March, marking the highest level since March 2022. The index is projected to rise to +14 in September.

The major non-manufacturers sentiment index fell to +33 in June, from +34 in March, the first drop in 16 quarters and the lowest level since December 2023. The index is projected to fall to +27 in September.

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.

The sentiment index for smaller manufacturers read -1 in June, unchanged from March. The index is expected to rise to zero in September.

The sentiment index for smaller non-manufacturers stood at +12 in June, down from +13 in March, the first drop in two quarters and the lowest level since September 2023. The index is projected to decrease to +8 in September.

Major firms' business investment plans this fiscal year, a key indicator of domestic demand, are projected to rise 11.1% y/y, above the historical average.

Capex plans of smaller firms are expected to fall 0.8% this fiscal year, but remain above the historical average. Smaller firms' capex plans tend to be revised up from the beginning of the fiscal year.