MNI BRIEF: BOJ Eyes Tankan For Signs Of Solid Output Prices

Bank of Japan officials are focused on whether output prices will remain solid, as they monitor corporate price-setting activity and whether the hoped-for virtuous cycle of rising prices and wages is gaining traction as March's Tankan is set to show slowing input prices, MNI understands.

If solid output prices are confirmed in Monday's March Tankan it will support the view that businesses aren’t worried about slowing private consumption caused by high prices and that they remain positive in their ability to raise retail prices after hiking wages. Bank officials hope the data provides further evidence of a shift away from the nation's deflationary mindset.

Officials are also focused on how input prices have evolved to gauge downward pressure on corporate profits amid weakening cost-push inflation. Import prices have peaked but the tempo of transferring high costs to prices varies across firms and industries. Attention is also being paid to whether corporate inflation expectations remain solid as the year-on-year rise in the Consumer Price Index has slowed. The year-on-year rise in Tokyo core inflation rate slowed as expected to 3.3% in February from January's 4.3%.

BOJ officials also expect capital investment plans by both major and smaller firms in fiscal 2023 to be solid, although capex plans this fiscal year will be revised down. (See MNI BRIEF: BOJ Vigilant On Output Outlook Despite Feb Rebound)