MNI DATA PREVIEW: BOJ Tankan To Show Dip In Business Sentiment

     TOKYO (MNI) - The Bank of Japan's June quarter Tankan survey, due July 1,

will show a drop in sentiment among many business sectors from three months ago,

as trade friction and heightened uncertainties over the global outlook continue

to weigh, economists said.

     The Tankan will show that both major and smaller companies revised capital

investment plans higher, although implementation may be delayed.

     --BUSINESS SENTIMENT DROPS

     The median economist forecast for the diffusion index (DI) for sentiment

among major manufacturers is +10, down from +12 in March, for the second

straight drop, with forecasts ranging from +7 to +11.

     Economists said that companies, especially major manufacturers, are seeing

lower exports caused by the slowing Chinese economy and weak capital investment

overseas.

     Non-manufacturers continue to suffer from labor shortages, although they

were benefiting solid demand by foreign visitors.

     The diffusion index is calculated by subtracting the percentage of

companies reporting deteriorating business conditions from those reporting an

improvement. A positive figure indicates the majority of firms see better

business conditions.

     The median forecast for the DI for major non-manufacturers is +20 in June,

down from +21 in March. The forecasts ranged from +19 to +22.

     The sentiment index for small manufacturers is projected to be +4 in June,

down from +6 in the previous survey. The sentiment for small non-manufacturers

is also forecast to slip to +11 from +12.

     Japan's economy grew at a faster pace than initially estimated in the

January-March quarter, with business investment stronger than initially seen.

     The economy rose 0.6% on quarter, or an annualized 2.2%, in Q1 thanks to

stronger capital investment and positive contribution from net exports, revised

from +0.5% on quarter, or an annualized +2.1%.

     The upward revision came mainly from higher capital investment, revised up

to a 0.3% gain (the MNI median forecast was +0.5%) from a preliminary -0.3%

following. There was a 2.7% gain in Q4.

     But the economy seems to be slowing in the second quarter in the wake of

weak exports and industrial production.

     --CAPEX PLANS RISE

     Capital investment plans by both major and smaller firms are likely to be

revised up from three months ago and will be closely watched by the BOJ. The

median economist forecast for major firms is +9.3% on year, up from +1.2 in the

March Tankan.

     The forecast for capex plans among smaller firms is -9.5%, up from -14.9%

in March.

     --INFLATION FORECASTS EYED

     BOJ officials are focused on corporate inflation forecasts, which are part

of the June Tankan survey but will be released on July 2.

     In the March survey, companies on average saw the inflation rate for one

and three years ahead unchanged from three months ago, while slightly lowering

their inflation outlook for five years ahead.

     Firms on average expect an annual consumer inflation rate at 0.9% a year

from now, unchanged from 0.9% in December. Companies also expect a 1.1% rise

three years out, also unchanged from December. But they expect five years ahead

numbers to fall to 1.1% in March from 1.2% in December.

--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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