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

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

September, released Tuesday, showed business sentiment, mainly amongst

manufacturers, fell from three months ago, hit by the intensified trade tension

and the slowing Chinese economy.

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

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

over an imminent pause in the virtuous cycle from profits to spending.

     Major manufacturers have been strongly influenced by the sustained weak

global demand, revising down their capital investment plans just a little.

     Capital investment by non-manufacturers, linked mainly with the ongoing

labor shortage and domestic demand, remained solid.

     Looking ahead, sentiment among major companies is expected to further

worsen amid the ongoing global risks.

     The key points from the survey:

     --The diffusion index for sentiment among major manufacturers stood at +5,

down from +7 in June, a third straight drop. September's +5 was the lowest level

since June 2013 when it was at +4, but above the MNI survey median forecast of

+2. The index is projected to fall to +2 in December.

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

friction and slowing overseas economies, while non-manufacturers are worried

about the impact of the sales tax hike that kicks in Tuesday on consumer

spending.

     --The sentiment index for major non-manufacturers fell to +21 in September

from +23, for the first drop in two quarters. The drop in business sentiment was

limited on the back of solid domestic demand.

     But the index is projected to fall to +15 three months ahead from +21 in

September. The forecast of -6 point was the first time since when June 2019 when

it also dropped -6 points.

     --The sentiment index for smaller manufactures fell to -4 in September from

June's -1 (the MNI survey median forecast was -6). The index is expected to slip

to -9 in December. 

     --The sentiment index for smaller non-manufacturers stood at +10 in

September, unchanged from +10 in June and is projected to slump to +1.

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

pickup in domestic demand, are projected to rise 6.6% on year, revised down from

+7.4% in the June Tankan. The expected capex plans were below the MNI median

forecast of +6.9%.

     --Capex plans by smaller firms are expected to fall 6.7% in fiscal 2019,

revised up from -9.3% in the June Tankan and below the MNI median forecast of

-5.8%.

     --The BOJ official said that some firms put off the implementation of their

capex.

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

fiscal 2019 was Y108.68, compared with Y109.35 in the June 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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