REPEAT: MNI: Analysts See BOJ Dec Tankan Business Sentiment Up

Repeats Story Initially Transmitted at 09:35 GMT Dec 8/04:35 EST Dec 8

     TOKYO (MNI) - The Bank of Japan's quarterly Tankan survey for December is

expected to show sentiment among many business sectors improved slightly from

three months ago, thanks to a pickup in overseas and domestic demand amid rising

share prices, economists predicted.

     Major manufacturers are benefiting from a recovery of global demand while

non-manufacturers are hit by higher costs caused by the weak yen and a tighter

labor supply.

     Generally, firms are expected to remain cautious for the next three months

due to continued uncertainty over global growth and financial markets as well as

labor shortages.

     The BOJ will release the outcome of its latest Tankan business survey at

0850 JST on Friday, Dec. 15 (2350 GMT on Dec. 14).

     The median economist forecast for the diffusion index (DI) for sentiment

among major manufacturers is +23, up slightly from +22 in the previous survey

and marking the fifth consecutive rise.

     The forecasts from 11 economists ranged from +22 to +24.

     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 +24 in

December, up from +23 in June, which would be the fourth straight quarterly

rise. The forecasts ranged from +23 to +24.

     The sentiment index for small manufacturers is projected to rise to +11 in

December from +10 in September. The index for small non-manufacturers is

forecast to edge up to +9 from +8 in September.

     Japan Research Institute said in a report that business sentiment among

major firms is supported by the weak yen, higher stock prices and a pickup in

exports in addition to record high profits at some firms.

     By contrast, smaller firms continue to suffer from the recent rise in labor

costs, restricting the improvement of their business sentiment, economists said.

     The Economy Watchers' Survey for November released Friday by the Cabinet

Office showed that while retailers and restaurants welcomed recent gians in

per-cusotmer spending, higher fuel and labor costs were squeezing profits at

some firms.

     BOJ officials expect the Tankan to show that the virtuous cycle from

profits to spending remains intact.

     The officials expect exports to continue supporting Japan's modest economic

recovery in the October-December quarter but they are also cautiously watching

whether the recent weakness in imports suggests a slowdown in domestic demand.

     The BOJ's real import index based on trade data released by the Ministry of

Finance gained 1.7% on month in October after falling 3.8% in September. The

October index was still 0.7% below the average of July-September.

     However, the concern over weak imports has been somewhat eased by a 22.2%

year-on-year rise in imports in the first 20 days of November, as seen in the

Ministry of Finance trade statistics. Imports rose 18.9% on year in October

following a 12.1% gain in September.

     To assess the strength of exports, BOJ officials look at the real export

index, which posted a 2.6% month-on-month rise in October, recovering about half

of the 5.4% drop in September.

     Exports for the first 20 days of November rose 15.0% on year, following

gains of 14.0% in October and 14.1% in September.

     Despite the slow start to consumer spending in the October-December

quarter, BOJ officials believe consumption will rebound in Q4 GDP data after a

slump in the previous three months caused by bad weather.

     The BOJ's supply-side Consumption Activity Index posted only a small

rebound in October, up a real 0.3% on the month on a seasonally adjusted basis.

It was the first rise since July, after falling 0.1% in September and dropping

0.7% in August.

     BOJ officials believe the weakness in October was mainly caused by a

temporary factor in the auto industry. New car sales fell following suspension

of production and shipments by Nissan Motor resulting from its below-standard

vehicle inspection scandal. But national sales of new vehicles, including mini

vehicles, posted the second straight year-on-year drop in November.

     The BOJ said that private consumption "has increased its resilience" in

light of improving employment and income conditions.

     Revised Q3 GDP data showed business investment was solid in the

July-September quarter. Capex grew 1.1% on quarter, or an annualized +4.3%,

marking the fourth consecutive quarter-on-quarter rise.

     The December Tankan is projected to show capex remains solid.

     The median economist forecast for fiscal 2017 capital investment plans

among major firms is +7.2%, down slightly from +7.7% in the September Tankan.

     Capital investment plans by major firms tend to be revised down in December

from September.

     The median forecast for capex plans among smaller firms is -9.25%, up from

-14.1% in the September survey.

     Capital investment plans by small businesses are conservative at the

beginning of fiscal year. They are revised up gradually toward the end of the

fiscal year.

     The BOJ board will analyze economic and financial conditions based on the

Tankan and other indicators ahead of its next policy meeting on December 20-21.

     BOJ official are also focused on the corporate inflation outlook, which is

part of the December Tankan survey but will be released later, on Monday, Dec.

18.

     In the September Tankan survey, companies on average revised down their

expectations for the consumer price index one year ahead from the previous

Tankan survey, but left their inflation outlook for three and five years ahead

unchanged from June.

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

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