MNI INSIGHT: BOJ Tankan Points To Lower Capex, Easing Jobs Mkt

By Hiroshi Inoue

     TOKYO (MNI) - Higher unemployment and falling corporate capital investment

plans remain a concern for the Bank of Japan, despite the encouraging signs for

business sentiment three months ahead outlined in the latest Tankan survey, MNI

understands.

     Bank officials had factored in a worsening of business sentiment in the

period to June but are hesitant to read too much into the improved forward

sentiment readings all the time the uncertainties thrown up by the coronavirus

remain.

     There is still a worry that despite the increased levels of funding getting

through to firms, sluggish profitability will lead to lower wages and higher

unemployment in coming months.

     However, those concerns are unlikely to feed through into policy action at

the mid-July meeting, although worries over the jobs market may frame thinking

around the quarterly outlook report due on July 15.

     --LABOR SHORTAGE EASES

     The Tankan showed the long-standing labor shortages across Japan had eased

in June, with the Employment diffusion Index rising to -6 in June from -28 in

March, with the DI for smaller firms, arguably harder hit by the tight jobs

market, recovering to -7 from -31.

     The tight labour markets have been one of the pillars underpinning the

BOJ's outlook for a continued gradual recovery in the economy and any further

increase in unemployment will dent the outlook.

     Expecting a dip in corporate profits in coming months, BOJ economists

expect that to translate into the downgraded capital investment intentions, with

the latest Tankan survey already showing the investment plans of companies

across the size spectrum already dipping below historical averages.

     The revised capital investment plans by smaller firms stood at -16.5%,

revised down from -11.7% in March - an unusual move as June often sees plans

revised higher as companies get a clearer look at the FY ahead.

     It wasn't all bad news for BOJ officials, as despite the downgrades, there

was plenty of signs that companies were looking to boost investment in the move

towards digitalization and R&D.

     --FINANCING

     Financing remained accommodative in recent months, but many companies saw a

worsening of their financial positions, despite various measures by the

government and the BOJ to facilitate corporate financing - although officials

note the Bank's latest facility to aid smaller firms didn't kick in until June

24, so may not have been fully factored in to Tankan responses

--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,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]