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

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

March, released Monday, showed business sentiment fell broadly from three months

ago, in line with expectations, hit by China's slowing economy and a worsening

of the terms of trade.

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

firms in this fiscal year were above historical averages, easing BOJ concern

that the virtuous cycle from profits to spending may stall.

     Business investment plans in fiscal 2019 remained solid, as many firms are

seeking to ease production capacity constraints, as they absorb high costs

through increased productivity.

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

fiscal 2019 was Y108.87, compared with Y109.50 seen in fiscal 2018.

     Looking ahead, sentiment among major companies is expected to further

worsen 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 survey:

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

+12, down from +19 in December. March's +12 was the lowest level since March

2107 when it was also at +12 and below the MNI survey median forecast of +14.

The index is projected to worsen to +8 in June.

     -- The sentiment index for major non-manufacturers also marked the first

drop in two quarters, falling to +21 in March from +24 in December, weighed by

continued labor shortages and sluggish private consumption. It was below the MNI

survey median forecast for +22. The index is projected to fall to +20 three

months ahead.

     -- The March sentiment index for smaller manufactures fell to +6 in March

from December's +14 (the MNI survey median forecast was +9). The index is

expected to slip to -2 in June. The sentiment index for smaller

non-manufacturers stood at +12 in March, up from +11 in December. The index is

projected to slump to +5 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 1.2% on year, compared with

+2.3% in fiscal 2018 in the March Tankan 2018. The expected capex plans were

above the MNI median forecast of -0.7%.

     -- Capex plans by smaller firms are expected to fall 14.9% in fiscal 2019,

compared with -16.8% in fiscal 2018 in the March Tankan 2018 and the MNI median

forecast of -19.8%.

--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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