MNI BRIEF: Sentiment Rises, Solid Capex Plans - June Tankan

Japanese benchmark business sentiment rose over Q2 – the first rise in seven quarters – thanks to pass-through of cost increases and despite global economic uncertainty, the Bank of Japan's June Tankan survey showed Monday.

Business sentiment among major non-manufacturers, mainly face-to-face services, improved for the fifth straight quarter as economic activity, including inbound tourists, resumed in addition to pass-through of cost hikes. The diffusion index for sentiment among major manufacturers stood at 5 in June, up from the March quarter's 1, with 9 projected for Q3.

The sentiment index for major non-manufacturers rose to 23 from 20 in March – the highest level since June 2018 – with 20 projected for Q3. The sentiment index for smaller manufactures improved 1 point to -5 – the second straight rise – with -1 projected for September. The sentiment index for smaller non-manufacturers stood at 11, up 2 points, reaching the highest level since March 2019. The survey forecasts the DI at 7 in Q3.

The Tankan also showed solid major- and small-firm capex plans despite high uncertainty and costs, supporting the BOJ view that a virtuous profit-spending cycle remains. Major-firm capex will rise 13.4% on year, revised from March's 3.2%, while small-firm capex will rise 2.4%, up from 1.4%.