MNI POLICY: Weaker Capex Revision in Tankan Remains BOJ Worry

If the downward revision of the capital investment plans of Japan's leading companies outlined in Thursday's Tankan survey are larger-than-historical average, concern will grow at the Bank of Japan that the economy will start to lose some upward momentum, MNI understands.

Any slowing of the economy will weigh on the labor market, narrowing the output gap of the economy and will push the BOJ into mulling additional policy action.

BOJ Governor Haruhiko Kuroda recently outlined the importance of achieving gradual price rise alongside rising corporate profits, jobs and wages, saying if factors, such as jobs and demand, negatively impacted prices, the BOJ will consider additional easing steps.

BOJ officials expect capital investment plans to be revised down from the June survey due to Covid-19 risks keep and their main focus will be the size of the downgrades.

HOPEFUL

Bank officials believe anecdotally that capex will dip, but only modestly, with bank lending being accommodative to plans for both large and medium-sized firms. This has been largely attributable to the fact that downward pressure from the financial side has not intensified, underpinned by the BOJ's and the government's measures to support financing.

The net "accommodative" for the diffusion index for financial institutions' lending attitudes as perceived by small and medium-sized firms in the June Tankan has been roughly at the same level as last quarter, indicating it is unlikely that business fixed investment by those firms will be pushed down from the financial side, the BOJ believes.

Bank officials are also concerned that the corporate inflation outlook is revised down from three months ago, which will increase concern over a deflationary mindset.