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MNI INSIGHT: Favourable BOJ Tankan Results, With Reservations

TOKYO (MNI)

The full impact of the Omicron on company sentiment virus variant was not sufficiently incorporated into the Bank of Japan December Tankan survey released on Monday, highlighting a still cautious policy outlook into year-end board policy meeting, MNI understands.

The Tankan is a key piece of the monetary policy puzzle for the BOJ, and will be used in the board discussions for the two-day meeting this week that ends on Dec. 17.

Major business sentiment was unchanged from three months ago, hit by high costs caused by a weaker yen in the December business sentiment survey, but sentiment among major non-manufacturers, mostly face-to-face services, improved for the sixth straight survey, see: MNI: BOJ Dec Tankan: Major Business Sentiment Flat, Services Up.

Overall, bank economists were encouraged by the Tankan results as a sign of an economy on the mend after pandemic state of emergency measures were lifted at the start of October, but with some reservations as the bulk of responses were gathered by Nov. 29, before the emergence of the Omicron variants. This meant that the survey results did not fully reflect potential corporate reactions.

A key concern for businesses is whether the variant will cause further supply-chain disruptions, and lead to higher raw material costs. Bank officials are still gathering information on any Omicron impact on business planning and corporate financing.

But solid capex plans wiped out BOJ concerns of weakened corporate trends in capital spending amid the supply-chain disruptions, and that the virtuous cycle from profits to spending in the corporate sector remains intact.

The Tankan showed that capital investment plans by major firms that bank officials focus on, were revised down to +9.3% from +10.1% but was still above the historical average. Capital investment plans by smaller firms was revised up to +5.1% from +4.7%, a normal trend.

But the Tankan also showed that financial positions at smaller firms remained under stress, although financial position by major firms was unchanged, keeping pressure on the BOJ to extend the special measures for smaller firms, which are set to expire in March 2022.

MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com
MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com

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