REPEAT: MNI 5 THINGS: BOJ June Tankan Sentiment Hit by Costs

Repeats Story Initially Transmitted at 05:34 GMT Jul 2/01:34 EST Jul 2

--Survey Also Shows FY18 Capital Investment Plans Remain Solid

     TOKYO (MNI) - The Bank of Japan's quarterly Tankan business survey for June

released on Monday showed that business sentiment marked the second straight

drop, hit by rising raw material costs and uncertainty over the impact of U.S.

trade disputes on global demand.

     Looking ahead, sentiment among many sectors is expected to fall further as

jitters over the protectionist U.S. trade policy and retaliatory actions linger.

Labor shortages in Japan are also pushing up costs and adding to supply

constraints.

     On the other hand, business investment plans remain solid for fiscal 2018

as many firms are seeking to ease production capacity constraints.

     The average dollar/yen exchange rate assumed by major manufacturers for

fiscal 2018 that began on April 1 was Y107.26, compared with Y109.66 seen in the

March survey.

     The diffusion index is calculated by subtracting the percentage of

companies reporting deteriorating business conditions from the percentage of

those reporting an improvement. A positive figure indicates the majority of

firms see better business conditions.

     The key points from the survey:

     * The diffusion index for sentiment among major manufacturers posted the

second straight quarter-on-quarter drop, falling to +21 in June from +24 in

March, hit by higher energy and raw material costs as well as concerns over

global demand. It came in slightly weaker than the MNI survey median forecast of

+22. The index is projected to be unchanged at +21 in September. The June index

level of +21 was the lowest since June 2017, when it was at +17.

     * The sentiment index for major non-manufacturers marked the first

improvement in four quarters, rising to +24 in June from +23 in March, in light

of solid domestic demand. It was higher than the MNI survey median forecast for

+23. But the index is projected dip to +21 three months ahead.

     * The sentiment index for smaller manufactures also fell to +14 in June

from +15 in March (the MNI survey median forecast was +13). It was the drop in

eight quarters. The index is expected to slip further to +12 in September.

     * The sentiment index for smaller non-manufacturers stood at +8 in June,

down from +10 in March. It was also the first fall in eight quarters. The index

is projected to slump to +5 in the next poll.

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

demand, are projected to rise 13.6% on year in the current fiscal year that

began on April 1, revised up from +2.3% in the March survey and above the MNI

survey median economist forecast for a 9.4% rise. Capex plans by smaller firms

are expected to fall 11.8% in fiscal 2018, also revised up from -16.8% in March

and firmer than the MNI survey median forecast of -13.8%.

     * A BOJ official told reporters that business sentiment was hit by higher

raw material prices and that confidence in the future was clouded by concerns

over trade disputes. But he also said the levels of capital investment plans by

both large and smaller firms in the current fiscal year were above their

historical averages.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com