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

MNI (London)
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.
     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
     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.
     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:
--MNI London Bureau; tel: +44 203-586-2225; email:
MNI London Bureau | +44 203-865-3812 |
MNI London Bureau | +44 203-865-3812 |

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