MNI POLICY:Tankan Supports BOJ Recovery View With Reservations

The Bank of Japan's March Tankan business sentiment survey showed that capital investment plans by both major and smaller firms are above the average of historical data this fiscal year, underpinning the BOJ's virtuous economic recovery view.

However, there are reservations about capex plans in every March Tankan as businesses tend to refrain from strictly showing their capex plans before the March 31 fiscal year end.

In addition, relatively large downward revision of capex plans last fiscal year were also behind the strong capex plans this fiscal year.

Central bank economists are focused on reliable revised capex plans in the June Tankan survey to gauge whether businesses maintain their solid capex plans, and whether a virtuous cycle continues.

The Tankan showed capex plans by all enterprises this fiscal year are expected to rise 0.5% from a year earlier, the first positive forecast on a March Tankan basis since the BOJ started releasing the survey in 1984.

The March Tankan highlighted the polarization of manufacturers which are benefitting from the recovery of goods, and non-manufacturers that are hardest hit by the pandemic.

Compared with a big improvement in business sentiment among manufacturers, the improvement of non-manufacturers was small and they remain cautious on the business view for the three months ahead.

Bank officials are encouraged by the improvement of corporate financing and tighter labor market conditions in the March Tankan survey.

The Tankan showed that financial position and lending attitude of financial institutions are both more accommodative than three months ago, supporting the view that the lending facilities of the BOJ and the government continue to produce the intended effects.

The March survey also showed that businesses saw the improvement of supply and demand conditions at home and abroad on the assumption that economic activity will continue its recovery.

The Tankan also showed a higher inflation view held by businesses, although bank officials are worried about the risk that the inflation view might be revised down amid prolonged weak demand caused by the pandemic and weak consumer prices.