MNI POLICY: BOJ Focused On Capex, Inflation View In Dec Tankan

Bank of Japan officials are watchful about a large downward revision in capital investment plans and in the corporate view on inflation in the Tankan survey due Monday as such moves could have negative implications, including for retail prices, MNI understands.

Bank officials expect capital investment plans by major firms to be unchanged or revised down slightly from the September Tankan since the drop in profits has eased somewhat from three months ago.

A larger than expected downward revision will raise BOJ concerns that firms are becoming more cautious and that the process from profits to spending is stalling or even reversing.

Although business sentiment, which is linked to profits, is expected to improve with the resumption of economic activity, conditions for services requiring personal interaction remain severe.

Bank officials are worried that if the overall economy remains at a low level for a prolonged period, more businesses will constrain capex to a larger degree.

INFLATION

As for prices, bank officials judge that the corporate view on short-term inflation has fallen slightly following the drop in actual consumer prices but that the medium- to long-term inflation view is largely unchanged.

Although the short-term view has fallen gradually in past Tankan surveys, bank officials haven't been too concerned as retail prices have mostly held steady.

Should the Tankan show a large drop in the medium- to long-term corporate inflation view, it raises the risk that businesses would consider lowering retail prices to stimulate demand like in past deflationary periods.