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By Hiroshi Inoue
     TOKYO (MNI) - The Bank of Japan's Tankan survey of business sentiment is
expected to be modestly lower in July as downside risks to the global economy
grow, although capital expenditure plans are likely to be revised up, but the
Bank doesn't believe those revised numbers will fully reflect intensifying
global trade tensions, MNI understands.
     The BOJ sees no need to change its baseline scenario that Japan's recovery
is continuing and will likely leave policy unchanged when its two-day policy
meeting ends Thursday.
     With many companies set to face their shareholders later in June, they are
unlikely to highlight weaknesses and revise investment plans lower going in to
those meetings, instead basing their projections on the climate in the previous
fiscal year.
     The BOJ feels revised plans put forward in June each year are normally a
better gauge of capex than the preliminary March numbers, but this year it feels
downside risks to the economy are not being fully acknowledged by major
companies, whose sentiment is being driven but their buoyant profit levels.
     Downside risks to the global economy have increased following U.S.
President Donald Trump's early May announcement of 25% tariffs on $200 billion
of Chinese goods and the subsequent retaliation from Beijing, with fears it will
stall the nascent recovery seen as Q2 got underway.
     Smaller firms will also publish their revised capex plans on July 1, with
the BOJ seeing the data as more reliable, as these firms can react to economic
trends far quicker.
     As the BOJ awaits hard data to show how the economy fared in May as the
Sino-U.S. dispute kicked up a notch, the Tankan capex revisions - along with
Bank official's interactions with companies -- will give a clear view at whether
the virtuous cycle between corporate profits and spending is sustainable.
     Both industrial production and export data - key drivers of Japan's economy
- were judged by the BOJ to have bottomed out in Q1, although China's sluggish
recovery in Q2 may have hampered exports of semi-conductors and chip-making
equipment, stalling a recovery.
     Japan's May trade data will be released Wednesday, as the BOJ gathers for a
two-day policy-setting meeting. May industrial production will be released on
June 28.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
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