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MNI (London)
--Capex Plans Ease Imminent Economic Downturn Risk
By Hiroshi Inoue
     TOKYO (MNI) - The Bank of Japan concerns over the virtuous cycle from
profits to spending stalling have eased a little in the wake of the March Tankan
survey showing solid investment plans by major manufacturers, but they still
want to see the June survey revisions to confirm historically inaccurate initial
data, MNI understands.
     Capex plans by both major and smaller firms were above average, but the
Tankan showed sentiment was hit by China's slowing economy and heightened
uncertainties over global demand.
     Major firms intend to increase investment by 1.2% in FY2019, outpacing the
MNI median forecast of a 0.7% decline but below the 2.3% rise outlined in the
March '18 Tankan. Plans laid out by smaller firms show investment down 14.9%,
beating the MNI median forecast of -19.8% and the initial plans of -16.8% last
March. Smaller firms' capex plans tend to be revised higher towards the end of
the year.
     The diffusion index for sentiment among major manufacturers stood at +12,
the lowest level since March 2017 and down from +19 in December, with a BOJ
official saying manufacturers were hit by the slower global economy and high raw
material prices. The index is seen dipping to +8 in June.
     To underline the issues faced offshore, the diffusion index of overseas
excess demand minus excess supply fell to -5 in March, the lowest since December
'16, down from +3 in December.
     --PRICING CONCERNS
     BOJ officials are more concerned over the corporate price-setting stance in
the Tankan and any impact on momentum toward their 2% price target.
     Major manufacturers input price index fell to +17 in March from +24 in
December, while the output index fell to +1 from +6, underlining a slowing
willingness to raise retail prices - but a slowing corporate concern over higher
input prices.
     There is some expectation at the BOJ that upward pressure on wages will
pick up as the Tankan shows continued tight labor supply. The employment index
stood at -35 in March among all firms, unchanged from -35 in December. The
employment index for smaller firms stood at -39 in March, also unchanged from
-39, but is expected to slip to -42 in June.
     The diffusion index showing the lending attitude of financial institutions
the stood at +24 in March, unchanged from +24 in December, underlining that the
accommodative environment continues and easing at least one other BOJ fear.
--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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MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com