MNI: BOJ Buoyed By Tankan View On Prices, Capex

Bank of Japan officials have been encouraged by September's Tankan survey as the prospect of corporate price hikes and solid capital investment intentions support the Bank's aim to deliver 2% inflation in a stable and sustainable manner, MNI understands.

The Tankan survey, which was released on Monday, showed business inflation expectations continue to rise as costs increase on the back of rising commodity prices and a weakening yen.

The survey also confirmed that companies are hiking retail prices, although some firms haven’t fully transferred high costs to their prices.

The focus has shifted to whether businesses raise wages at a reasonable level to not only to ease households’ cost of living pressures but to also boost medium- to long-term inflation expectations.

INFLATION EXPECTATIONS

BOJ officials have been heartened by rising inflation expectations among corporate executives, which may pave the way for firms to raise wages next spring, the Tankan also showed.

On average, companies saw the annual consumer inflation rate rising to a record high of 2.6% a year from now, up from 2.4% in June. They also saw a record high rise of 2.1% rise in three years and a record high 2.0% gain five years ahead, compared with +2.0% and +1.9%, respectively in the June survey.

The Tankan also underscored concerns about the impact on Japan from slower global growth, especially as the U.S. economy slows as policy is tightened aggressively.

Japanese headline business sentiment fell from three months ago, reporting the third consecutive drop, hit by higher costs caused by rising commodity prices and a falling yen, the BOJ’s September Tankan business sentiment survey published Monday showed.

But business sentiment among major non-manufacturers, mainly the face-to-face services, improved for the second straight quarterly rise as economic activity resumed after the government lifted the state of emergency.

The diffusion index for sentiment among major manufacturers stood at +8 in September, down from +9 in June. It was the lowest level since March 2021. The median forecast was +10. The index is projected to rise to +9 in December.

CAPEX CONFIDENCE

Business investment plans by major firms in fiscal 2022, which are key to a pickup in domestic demand, are projected to rise 21.5% on year compared with +18.6% in the June Tankan, the Tankan showed.

Capex plans of smaller firms are expected to rise 1.3% this fiscal year, up from -1.4% in June.

The revised capex plans by major and smaller firms were above historical averages - a closely watched BOJ metric.

The revised capex plans are considerably high but it is uncertain whether the planned capex will be smoothly implemented given the outlook for global demand.