MNI DATA IMPACT: BOJ   Tankan: Sentiment Rises, Weaker Capex

Japanese business sentiment improved from three months ago, boosted by economic activity resuming as the impact of Covod-19 eased somewhat, the Bank of Japan's September Tankan business sentiment survey published Thursday showed.

Many firms, especially the larger ones, expect sentiment to further improve three months ahead, but there is still an air of caution as the threat of the pandemic remains.

Compared with major firms, the improvement in sentiment among smaller firms was more limited, with the service sector, a large part of that group, hardest hit by the fallout from the virus.

INVESTMENT PLANS

The Tankan also showed capital investment plans by major firms revised lower, sitting below historical averages.

The diffusion index for sentiment among major manufacturers stood at -27 in September, up from -34 in June, registering the first rise in 11 quarters, although the median forecast of -23. The index is projected to improve to -17 in December.

The Tankan 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 sentiment index for major non-manufacturers rose to -12 in September from -17, the first rise in five quarters. The index is projected to improve to -11 three months ahead.

A BOJ official said that the improvement in business sentiment was largely due to recovering exports, production and private consumption, but the outlook remains cautious.

SMALLER FIRMS

The sentiment index for smaller manufactures rose to -44 in September from -45 in June , also a first rise in 11 quarters. The index is expected to improve to -38 in December. The sentiment index for smaller non-manufacturers stood at -22 in September, up from -26 in June, but is projected to worsen to -27 in December.

Business investment plans by major firms in fiscal 2020, key to a pickup in domestic demand, are projected to rise 1.4% on year, revised down from +3.2% in the June Tankan, while capex plans of smaller firms are expected to fall 16.1% in fiscal 2020, revised up modestly from -16.5% in the June Tankan.

Capex plans by major and smaller firms were both below the average of historical levels -- a closely watched BOJ metric.

EXCHANGE RATES

The average dollar/yen exchange rate assumed by major manufacturers for fiscal 2020 was JPY107.34, compared with JPY107.87 in the June, while the average euro/yen exchange rate was JPY120.42, compared with JPY119.74.