MNI DATA PREVIEW: BOJ Tankan To Show Biz Sentiment Pick Up

The Bank of Japan's September Tankan survey will likely show an improvement in sentiment among many businesses from three months ago, boosted by resumption of economic activity at home and abroad.

However, overall sentiment will remain well below historic levels and the outlook will be cautious as the Covid-19 virus is still in circulation unchecked.

The quarterly Survey, which will be released on Oct 1, will show major firms revise down their capital investment plans on continuing risks, coming in well below average.

BUSINESS SENTIMENT IMPROVES

Economists expect the diffusion index (DI) for sentiment at major manufacturers will be -23, up from -34 in June, recording a first rise in 11 quarters. Forecasts ranged from -20 to -27.

Major manufacturers are benefiting from July's recovery in both exports and industrial production after the sharp falls seen across Q2.

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 -9 in September, up from -17 in June. The forecasts ranged from -5 to -13. The sentiment index for small manufacturers is projected to rise -38 in September from -45 in the previous survey. The sentiment for small non-manufacturers is also forecast to rise to -22 from -26.

WEAK CAPEX PLANS

Capital investment plans by major companies are likely to be revised slightly down from three months, indicating an overall y/y drop in capex spending. Estimates see capex revised down to +0.8% from +3.2% in June.

Capex plans by smaller firms are expected to be revised up to -15.0% from -16.5% in the June Tankan.

Economists expect business sentiment to improve three months ahead as economic activity continues to recover. However, until a vaccine or cure is found for the COVID-19 virus, they see sentiment remaining pressured.