MNI BRIEF: Sentiment Drops; Solid Capex - BOJ's Tankan

The slowing global economy and increasing commodity prices drove Japanese benchmark business sentiment lower over the previous quarter – the fifth consecutive quarterly fall, according to the Bank of Japan's (BOJ) March Tankan business sentiment survey.

But sentiment among major non-manufacturers, mainly face-to-face services, improved for the fourth straight quarter as economic activity – such as inbound tourism – resumed. The diffusion index for sentiment among major manufacturers stood at +1 in March, down from +7 in December, the lowest level since December 2020. The index is projected to rise to +3 in June.

The BOJ calculates the Tankan diffusion index by subtracting the percentage of companies reporting deteriorating business conditions from those that report improvement. A positive figure indicates the majority of firms see better conditions.

The Tankan also showed large- and small-company capex plans were solid, despite uncertainty and the rise in commodity prices, in line with the BOJ's estimate. Major firm business investment plans in fiscal 2023, key to a pickup in domestic demand, are projected to rise 3.2% y/y, compared to 2022's 2.2% forecast in the March 2022 Tankan. Large- and small-company capex plans at the beginning of the fiscal year were above historical average.