MNI INSIGHT: Solid Capex Plans Support BOJ Econ Recovery View

--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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