MNI POLICY: BOJ Tankan Supports Econ Recovery View; Risks Seen

     TOKYO (MNI) - The Bank of Japan sees the virtuous cycle from profits to

spending as still working, helping push a sustainable economic recovery, with

officials noting the BOJ's latest Tankan survey shows capital investment plans

by major firms as revised up to levels above the historic average.

     Capex plans by smaller firms, as expected, were also revised up from three

months ago.

     However, BOJ officials are concerned that prolonged uncertainties over the

global economy will weigh on sentiment of both firms and households, impeding

their spending, which will undermine the virtuous cycle.

     The BOJ board, who gather for their 2-day policy meeting next week, will

likely maintain the view that the economy is expected to expand moderately .

     The diffusion index for major manufacturers, calculated by subtracting the

number of companies reporting deteriorating business conditions from those

reporting an improvement, stood at +19 in December, unchanged from +19 in

September.

     The data reflected a recovery in the DI after September's weakness that

followed a string of natural disasters, and that the impact of global trade

friction on business sentiment was limited.

     Business investment plans by major firms, the key to a pickup in domestic

demand, are projected to rise 14.3% y/y in the current fiscal year, slightly

revised up from +13.4% in forecast in the September survey.

     The employment index -- based on reports of excess employment minus those

citing insufficient employment -- fell to -35 in December among all firms, down

from -33 in September. The employment index for smaller firms fell to -39 in

December from -37 in September and the DI is expected to slip to -43 in March.

     December's -35 was the lowest level since August 1991 when it was at -40.

--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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