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Free AccessMNI INSIGHT: BOJ Sees Econ Cycle Intact On Solid Tankan Capex
By Hiroshi Inoue
TOKYO (MNI) - Bank of Japan concerns that the economy could deviate from
its recovery path in the near-future have been eased by the September Tankan
business sentiment survey which shows a continued follow through from corporate
profits to investment spending, MNI understands.
BOJ officials are encouraged by the solid capital investment plans of both
major and smaller firms, indicating the impact of current trade frictions on
corporate business plans is limited.
However, BOJ officials are keeping a close eye on whether firms implement
capex plans amid the lingering uncertainty over global demand and whether global
financial markets remain stable.
--VOLATILE MARKET CONCERNS
The BOJ is concerned that increased volatility in global financial markets
would hit business sentiment and likely prevent firms from implementing capital
investment, which in turn will upset the economic recovery.
The diffusion index for major manufacturers, calculated by subtracting the
number of companies reporting deteriorating business conditions from those
reporting an improvement, posted the third straight quarter-on-quarter drop in
September. It fell to +19 in September from +21 in June, hit by the lingering
uncertainties regarding the global economy and higher energy and raw material
costs.
The DI is expected to be unchanged at +19 in December, reflecting corporate
cautious stance amid the ongoing trade friction.
Business investment plans by major firms, the key to a pickup in domestic
demand, are projected to rise 13.4% y/yin the current fiscal year, slightly
revised down from +13.6% in forecast in the June survey. Capex plans by smaller
firms are expected to fall 8.4% in fiscal 2018, revised up from -11.8% in June.
The levels of capital investment plans by both large and smaller firms in
the current fiscal year were close to their historical averages.
--PRICE HIKES INTACT
BOJ officials are also focused on the corporate price-setting stance in the
Tankan, as they examine momentum toward their 2% price target.
The index for input prices (costs) among major manufacturers fell to +27 in
September from +30 in June while the index showing output (sales) prices among
major manufacturers rose slightly to +7 from +5 in June.
This means that companies have a continued willingness to raise their
retail prices, although concerns over high input prices eased somewhat.
BOJ officials expect upward pressure on wages to increase, with the Tankan
showing continued tight labor supply.
The employment index -- based on reports of excess employment minus those
citing insufficient employment - fell to -33 in September among all firms, down
from -32 in June. The employment index for smaller firms fell to -37 in
September from -35 in June and the DI is expected to slip to -42 in December.
--SOLID OVERSEAS DEMAND
The Tankan showed that companies didn't see overseas supply and demand
conditions for products worsen, indicating the U.S. trade disputes with major
economies have not (yet, at least) led to a fall in global demand.
The diffusion index of overseas excess demand minus excess supply stood at
+4 in September, unchanged from +4 in June.
--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
[TOPICS: MMJBJI,MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.