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MNI INSIGHT: Tankan Supports BOJ Econ Views; High Costs Eyed

TOKYO (MNI)

Bank of Japan officials will maintain the outlook for the economy to rebound from pandemic conditions as intact as the September Tankan survey showed that capital investment plans by companies stand solid, MNI understands.

The survey showed that capex plans in both smaller and major firms that BOJ officials are focused on indicated that a virtuous cycle from profits to spending will not reverse despite continued high uncertainties.

Bank officials are still concerned about high import costs on profits at smaller firms and non-manufacturers as those businesses don't benefit from overseas demand, see: MNI STATE OF PLAY: Evolving Risks, Data Vital For BOJ Oct Meet.

The Tankan showed that major manufacturers are partly succeeding in transferring those high import costs to retail prices but that smaller firms and non-manufacturers are struggling to do the same, though inflation expectations rose slightly in the survey.

But bank officials see the limited ability to pass along higher costs leading to slimmer profits at smaller firms and non-manufacturers possibly denting capex plans. As well, supply chain restrictions are expected to continue, along with a weaker yen.

IMPORTS, CAPEX, SUPPLY CHAINS

The Tankan showed capex plans by major firms were revised up to +10.1% from March's +9.6%. Capex plans by smaller firms were also revised up to +4.7% from +0.9% in June, although capex by smaller firms tend to be revised up after the beginning of new fiscal year.

The revised capital investment plans were all above the historical average.

The Tankan also showed both major and smaller firms continued to suffer from labor shortages but that the corporate financing environment remained accommodative.

TANKAN TOPLINES

The diffusion index for sentiment among major manufacturers stood at +18 in September, up from +14 in June, although the median forecast was +15. The index is projected to fall to +14 in December, and compared to expectations of muted sentiment, see: MNI: BOJ Sept Tankan To Show Sentiment Muted In Key Businesses.

The sentiment index for major non-manufacturers rose to +2 in September from +1 in June, the fifth straight rise. The index is projected to rose to +3 three months ahead.

MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com
MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com

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