MNI DATA IMPACT: BOJ Dec Tankan: Sentiment Drops, Capex Solid

     TOKYO (MNI) - The Bank of Japan's December quarterly Tankan business

survey, released Friday, showed business sentiment fell from three months ago,

hit by ongoing trade tensions and the slowing global economy.

     Non-manufacturers were hit by a post-tax hike drop in spending and typhoon

damage.

     But the survey also showed that capital investment plans by major and

smaller firms remain above historical averages, easing BOJ concern over an

imminent pause in the virtuous cycle from profits to spending.

     Major manufacturers, although hit by ongoing weak global demand, revised

their capital investment plans up. Non-manufacturers saw their investment plans

hold steady as they look to overcome labor shortages.

     Looking ahead, sentiment among major companies is expected to further

worsen amid ongoing global risks.

     The key points from the survey:

     --The diffusion index for sentiment among major manufacturers stood at

zero, down from +5 in September, the fourth straight drop., touching the lowest

level since March 2013 when it was at -8, and below the MNI survey median

forecast of +3. The index is projected to be at zero in March.

     --A BOJ official said business sentiment was broadly hit by the sustained

trade tension and the slowing global economy and non-manufacturers were

adversely affected by the post-sales tax hike and typhoons.

     --The officials, however, said that firms see the trade friction to ease

and IT-related adjustments to bottom out, limiting the drop in business

sentiment.

     --The sentiment index for major non-manufacturers fell to +20 in December

from +21 last quarter, a second straight drop. The index is projected to fall to

+18 three months ahead.

     --The sentiment index for smaller manufactures fell to -9 in December from

September's -4 (the MNI survey median forecast was -7). The index is expected to

slip to -12 in March. The sentiment index for smaller non-manufacturers stood at

+7 in December, down from +10 in September and is projected to slump to +1.

     --Business investment plans by major firms in fiscal 2019, key to a pickup

in domestic demand, are projected to rise 6.8% on year, revised up from +6.6% in

the September Tankan. The expected capex plans were above the MNI median

forecast of +6.0%. Capex plans by smaller firms are expected to fall 2.2% in

fiscal 2019, revised up from -6.7% in the September Tankan and also above the

MNI median forecast of -2.9%.

     --The average dollar/yen exchange rate assumed by major manufacturers for

fiscal 2019 was Y107.83, compared with Y108.68 in the September survey.

     The 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.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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