MNI: BOJ Tankan To Show Mixed Business Sentiment; Solid Capex

The Bank of Japan's December Tankan survey is expected to show sentiment among major manufacturers worsened slightly but sentiment among major non-manufacturers is projected to have risen, economists predicted.

Manufacturers’ sentiment will likely be weighed down by ongoing high costs and slowing overseas demand but non-manufacturers are expected to be encouraged by the reopening of the economy and a recovery of inbound tourists.

The BOJ will release the outcome of its Tankan quarterly business survey for December - conducted from early November to December 13 - on December 14.

Economists expect the diffusion index (DI) for sentiment among major manufacturers to fall to +6 from +8 in September. Forecasts ranged from +6 to +8. The diffusion index is calculated by subtracting the percentage of companies reporting deteriorating business conditions from those reporting an improvement. A positive figure indicates the majority of firms see better business conditions.

The median forecast for the DI for major non-manufacturers is +17 in December, up from September’s +14. The forecasts ranged from +13 to +20. The sentiment index for small manufacturers is projected to have fallen to -6 from -4 in September. The sentiment for small non-manufacturers is forecast to rise to +5 from +2 in September.

The Tankan will show that capital investment plans by major firms are expected to be revised down slightly, a normal pattern, from three months ago. This indicates demand for capex remains solid and a virtuous cycle of economic expansion and investment continues working. Capital investment plans by major firms will be revised down to +20.9% from +21.5% in September. Capex plans by smaller firms are expected to rise 4.4% in December, up from +1.3% in September.

The upward revision of capex plans by smaller firms from three months ago is a normal pattern as the capex plans tend to be revised up from the beginning of new fiscal year.

BOJ officials are focused on how corporate price-setting has evolved amid a combination of high raw materials and recovering private consumption, although smaller firms are having difficulty transferring high costs to retail prices. They are also focused on how business inflation expectations, which have been rising, are evolving amid the drop in crude oil prices.