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

     TOKYO (MNI) - Business sentiment in Japan, as measured by the Bank of

Japan's quarterly Tankan survey, fell in June as global trade tensions

intensified but showed that capital investment plans remain solid.

     The June Tankan, released on Monday, showed business sentiment,

particularly among manufacturers, had fallen over the last three months.  

     While sentiment was lower, as expected, the survey also showed capital

investment plans by both large and small firms for this fiscal year are above

historical averages, easing BOJ concern over an imminent pause in the cycle from

profits to capital spending.

     The Tankan showed that major manufacturers have been strongly influenced by

overseas demand but have maintained plans for solid capital investment.

     Capital investment by non-manufacturers in response to the labor shortage

also remained firm.

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

fiscal 2019 was Y109.35, compared with Y108.87 in the March survey.

     Looking ahead, sentiment among major companies is expected to decline amid

the ongoing uncertainties over global demand.

     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.

     The key points from the June survey:

     -- The diffusion index for sentiment among major manufacturers stood at +7,

down from +12 in March. June's +7 was the lowest level since September 2016 when

it came in at +6 and below the MNI survey median forecast of +10. The index is

projected to be unchanged at +7 in September.

     -- The sentiment index for major non-manufacturers marked the first rise in

two quarters, rising to +23 in June from +21 in March, due to continued domestic

demand. The index result was above the MNI survey median forecast for +20. The

index is projected to fall to +17 three months ahead.

     -- The sentiment index for smaller manufacturers fell to -1 in June from

March's +6 (the MNI survey median forecast was +4). The index is expected to

slip to -5 in September. The sentiment index for smaller non-manufacturers stood

at +10 in June, down from +12 in March. This index is projected to slump to +3

in the next poll.

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

pickup in domestic demand, are projected to rise 7.4% year on year, revised up

from +1.2% in the March Tankan. The expected capex plans were below the MNI

median forecast of +9.3%.

     -- Capex plans by smaller firms are expected to fall 9.3% in fiscal 2019,

also revised up from -14.9% in the March Tankan and above the MNI median

forecast of -9.5%.

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

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

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