MNI POLICY: BOJ Tankan To Show Business Sentiment Slump

--Main Manufacturers' DI Seen At -31 Vs -8 March

     TOKYO (MNI) - The Bank of Japan's June quarter Tankan survey will show a

sharp decline in sentiment among many business sectors from three months ago as

the spreading coronavirus pandemic triggers sluggish domestic and overseas

demand.

     The Tankan will show that major firms revised up their capital investment

plans outlined in March, but smaller firms will likely revise theirs lower, a

reversal of the normal early summer survey pattern.

     The BOJ will release the outcome of its Tankan quarterly business survey

     for June conducted from mid-May to June 30 at 0850 JST on July 1, (2350 GMT

on June 30).

     --BUSINESS SENTIMENT SLUMPS

     Economists expect the diffusion index (DI) for sentiment among major

manufacturers is to come in at -31, a sixth straight quarterly decline and down

sharply from -8 in March. Forecasts ranged from -23 to -38, with both

manufacturers and non-manufacturers hit by social distancing measures and

government enforced lockdowns.

     The strict lock-downs seen in the U.S. and much of western Europe has

weighed on exports to those normally buoyant markets, further worsening business

sentiment.

     The diffusion index is calculated by subtracting the percentage of

companies reporting deteriorating business conditions from those reporting an

improvement. A positive figure indicates the majority of firms see better

business conditions.

     The median forecast for the DI for major non-manufacturers is -17 in June,

down from +8 in March. The forecasts ranged from -9 to -42.The sentiment index

for small manufacturers is projected to plunge to -40 in June from -15 in the

previous survey. The sentiment for small non-manufacturers is also forecast to

slip to -31 from -1.

     --WEAK CAPEX PLANS

     Capital investment plans by major companies are likely to be revised

slightly up from three months and the focus is how the revised capex is below

the historical average level. Smaller firms will likely be revised modestly

higher, although MNI learnt this week the BOJ may have reservations over the

overall accuracy to the June Dis given survey collection issues.

     Economists expect business sentiment to improve three months ahead as

economies open up at home and abroad. However, until a vaccine or cure is found

for the COVID-19 virus, sentiment will remain stretched.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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