MNI BRIEF: Dec Tankan Shows Sentiment Drop; Solid Capex Plans

Japanese benchmark business sentiment fell from three months ago, for the fourth consecutive quarterly fall, hit by high costs caused by the rise in commodity prices and the yen’s fall in addition to slowing global demand, the Bank of Japan's December Tankan business sentiment survey published Wednesday showed

But the business sentiment among major non-manufacturers, mainly face-to-face services, improved for a third straight quarter as economic activity, including inbound tourists, improved despite a rise in infections. (See MNI POLICY: BOJ Policy Shift Needs Firm Tankan Inflation View)

The diffusion index for sentiment among major manufacturers stood at +7 in December, down from +8 in September and for the lowest level since March 2021. The median forecast was +6. The index is projected to fall to +6 in March.

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 +19 in December from +14 in September, for the highest level since December 2019. The index is projected to stand at +11 three months ahead.

The sentiment index for smaller manufactures rose to -2 from September at -4, for the fourth straight rise. The index is expected to fall to -5 in March.The sentiment index for smaller non-manufacturers stood at +6 in December, up from +2 in September, for the third straight rise. The DI is projected to worsen to -1 in March.

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, supporting the BOJ view that capex will remain firm.