MNI INSIGHT: BOJ Focus On Tankan Capex Revision, Sales Prices

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials are focused on how big the downward

revision to capital investment plans (capex) expected in its latest Tankan

quarterly business survey will be, MNI understands.

     The officials will also watch the survey to see how many retailers report

suffering from higher costs and whether corporate inflation expectations have

improved.

     The BOJ will release the business sentiment results and the capex outlook

from the December Tankan survey at 0850 JST Friday (2350 GMT Thursday). The

corporate inflation outlook portion of the survey is due to be released at 0850

JST on Monday, Dec. 18 (2350 GMT, Dec. 17)

     BOJ officials expect the Tankan to confirm that the virtuous cycle of

higher corporate profits resulting in increased corporate spending is continuing

to work. Exports and production are picking up while consumer spending has

remained resilient, they believe.

     --SENTIMENT SEEN UP

     The MNI survey median forecast for the diffusion index (DI) for sentiment

among major manufacturers is +23, up slightly from +22 in the previous survey in

September, which would mark the fifth consecutive rise.

     BOJ officials are also focused on whether the Tankan will confirm strong

overseas demand for Japanese exports. In the September survey, the index for

overseas supply and demand conditions for products among major manufacturers

rose to zero from -2 in June.

     --CAPEX DOWNWARD REVISION

     But regardless of the pace of economic growth, capital investment plans by

major firms are usually revised down in December from September.

     The MNI survey median forecast for fiscal 2017 capital investment plans

among all major firms is +7.2%, down from +7.7% projected by surveyed firms in

September.

     BOJ economists are monitoring closely whether any downward revision remains

within recent historical patterns.

     Last year, capex plans by major manufacturers were revised down to 11.2% in

December from 12.7% in September. In 2015, they fell to 16.6% in December from

18.2% three months earlier, and in 2014 they slipped to 11.4% from 13.4%.

     By contrast, capital investment plans by small businesses are conservative

at the beginning of the fiscal year and are usually revised up gradually toward

the end of the year.

     The MNI survey median forecast sees capex plans among smaller firms at

-9.25%, revised up from -14.1% in September.

     --COSTS VS. PRICES

     BOJ officials are also closely watching the following indicators in the

Tankan:

     -- Whether business sentiment for retailers that are suffering from higher

costs fell in December and how many companies are passing on higher costs to

prices.

     -- Whether the diffusion index on production capacity shows a bigger

negative figure than in September, meaning a greater shortfall of sufficient

capacity. This would suggest rising pressures on consumer prices with a six

month lag, the BOJ believes. In September, the index fell to -3 from -2 in June.

     -- Sentiment on output and input prices to gauge many firms are suffering

from higher costs and whether they are transferring higher costs on to prices.

In the September Tankan, the index showing output prices among major

manufacturers improved to zero in September from -1 in June, meaning the number

of firms that had difficulties in raising prices decreased slightly. On the

other hand, the index for input prices among major manufacturers rose to +14

from +13, showing the number of firms that are suffering from higher costs

increased.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

[TOPICS: MMJBJI,MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]