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MNI BRIEF: BOJ Sep Tankan Sees Sentiment Drop, Solid Capex

MNI (Tokyo)

Japanese headline business sentiment fell from three months ago, reporting the first drop in three quarters, hit by higher costs caused by rising commodity prices and a falling yen, the Bank of Japan's September Tankan business sentiment survey published Monday showed.

But business sentiment among major non-manufacturers, mainly the face-to-face services, improved for the second straight quarterly rise as economic activity resumed after the government lifted the state of emergency.

The diffusion index for sentiment among major manufacturers stood at +8 in September, down from +9 in June. It was the lowest level since March 2021. The median forecast was +10. The index is projected to rise to +9 in December.

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 major non-manufacturers rose to +14 in September from +13 in June, rising to the highest level since December 2019. The index is projected to stand at +11 three months ahead.

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

The sentiment index for smaller non-manufacturers stood at +2 in September, up from -1 in June. The DI is projected to worsen to -3 in December.

The Tankan also showed capital investment plans by major and smaller firms were solid despite high uncertainties and the rise in costs caused by higher commodity prices.

Business investment plans by major firms in fiscal 2022, key to a pickup in domestic demand, are projected to rise 21.5% on year, compared with +18.6% in the June Tankan.

Capex plans of smaller firms are expected to rise 1.3% this fiscal year, up from -1.4% in June.

The revised capex plans by major and smaller firms were above the average of historical levels -- a closely watched BOJ metric.

MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com
MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com

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