REPEAT: INSIGHT: BOJ Sees Econ Cycle Intact, Remains Vigilant

Repeats Story Initially Transmitted at 04:40 GMT Dec 14/23:40 EST Dec 13

--December Tankan Survey Shows No Signs Of Worsening Capex Plans

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials are encouraged by the results of the

latest Tankan business sentiment survey, which shows no sign of a near-term

worsening of the virtuous cycle from corporate profits through to capital

investment, MNI understands.

     However, they remain vigilant against the risk that prolonged uncertainties

over the global economy will weigh on business sentiment, prompting firms to

refrain from implementing capital investment.

     The officials have focused on how capital investment plans and business

sentiment have evolved over the last three months -- a period that saw the

economy slow on global growth concerns and natural disasters at home. 

     Officials had expected sentiment to snap back as the weather and earthquake

effects dissipated, but were aware of the risk sentiment could be impacted by

slowing overseas demand.

     --SOLID CAPEX PLANS

     The diffusion index for sentiment among major manufacturers stood at +19,

unchanged from September, indicating that the impact of the trade friction was

limited. Capital investment plans of both major and smaller firms were solid,

indicating the limited impact from global trade disputes, encouraging officials.

     Business investment plans by major firms, the key to a pickup in domestic

demand, are projected to rise 14.3% on year in the current fiscal year, slightly

revised up from +13.4% seen in the September survey and above the MNI survey

median economist forecast for a 12.4% rise.

     Capital investment plans by smaller firms are expected to fall 3.7% in

fiscal 2018, revised up from -8.4% in September and was in line with the MNI

survey median forecast of -3.7%.

     BOJ officials, however, are keeping a close eye on whether firms actually

implement capex plans amid ongoing global uncertainties and volatile financial

markets.

     Although acknowledging the size of the downside risks to the domestic

economy from global uncertainties, BOJ officials don't see the economy tipping

into recession anytime soon. But there is a concern that the recent volatility

in financial markets will hit corporate investment plans.

     The Tankan's diffusion index of overseas excess demand minus excess supply

stood at +3 in December, down from +4 in September.

     --PRICE HIKES SLOW

     BOJ officials also focused on the corporate price-setting stance in the

Tankan, as they eye momentum toward their 2% price target.

     The index for input prices (costs) among major manufacturers fell to +24 in

December from +27 in September and the index showing output (sales) prices at

touch lower at +6 from +7, with both suggesting a corporate willingness to raise

retail prices slowed slightly and concern over high input prices eased.

     However, the rising trend of input prices and output prices among

non-manufacturers strengthened from three months ago.

     BOJ officials expect upward pressure on wages to increase, with the Tankan

showing continued tight labor supply. The employment index -- based on reports

of excess employment minus those citing insufficient employment - fell to -35 in

December among all firms, down from -33 in September. 

     The employment index for smaller firms fell to -39 in December from -37 in

September and the DI is expected to slip to -43 in March.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com