–Supply Chain Recovery Supports Auto Industry but Silicon Demand Sluggish
–Eased Covid Rules Helping Services Sector While High Costs Hurting Consumers
–December Business Confidence Seen Flat to Slightly Lower
–FY23 Capex Plans Among Large, Small Firms Expected to Be Revised Up Further
By Max Sato
(MaceNews) – The Bank of Japan’s quarterly Tankan business survey is expected to show confidence among major manufacturers in Japan picked up only slightly in September after posting its first rise in seven quarters in June as improved supply chains are overshadowed by slowing global growth, while relaxed Covid restrictions are supporting restaurants, hotels and other service providers.
Japan’s Covid border control was widely eased in May and the yen remains weak, leading to a fast recovery in spending by foreign visitors at retail stores and tourist destinations. But some economists warn that elevated costs for daily necessities are prompting Japanese households to be more cautious about spending.
Looking ahead, large companies are likely to see no change in three months ahead while smaller firms are expected to project a slight pullback in their sentiment for December.
The BOJ will release the results of the Tankan survey conducted from late August through the end of September at 0850 JST on Monday, Oct. 2 (1950 EDT/2350 GMT Sunday, Oct. 1).
Many firms are believed to have returned their responses by mid-September. By then, revised second quarter GDP data had been released, showing that Japan’s strong economic growth led by a sharp rebound in net exports amid easing import costs in the April-June quarter was revised down as business investment in equipment, private consumption and public works spending all turned out to be weaker than initially estimated.
The Tankan survey is expected to show both large and small firms are revising up their plans for investment in equipment for fiscal 2023 that began on April 1. Capex is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
The BOJ will analyze this and other pieces of data ahead of its next policy meeting on Oct. 30-31, when the bank is expected to leave its basic easing stance unchanged to help achieve stable 2% inflation with substantial wage growth while continuing to review the costs and benefits of keeping the yield curve control framework including the negative short-term interest rate target.
Sentiment Seen Up Slightly Among Manufacturers, Non-Manufacturers
The Tankan diffusion index showing sentiment among major manufacturers is forecast to rise slightly to 6 in September from 5 in June, when it rose more than expected from 1 in March, when it dipped from 7 in December, 8 in September, 9 in June, 14 in March 2022 and 18 in both December and September 2021, when it rose from 14 the previous quarter.
The Tankan index measuring sentiment among major non-manufacturers is seen improving slightly to 24 from 23 in June, which would be a sixth straight quarterly improvement, after edging up to 20 in March from 19 in December and following 14 in September, 13 in June, 9 in both March 2022 and in December 2021.
The sentiment index for smaller manufacturers is forecast at -4 (minus 4) in September, up slight from -5 in June and -6 in March, when it fell from -2 in December and following -4 in the previous three quarters. The index for their non-manufacturing counterparts is seen posting a sixth consecutive improvement in September, rising to 12 from 11 in June, 8 in March, 6 in December, 2 in September, -1 in June and -6 in March 2022.
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.
Companies Expected to Revise Up Capex Plans Further
Major firms are projected to show their plans for business investment in equipment will rise a combined 13.8% on the year in fiscal 2023 ending in March 2024, revised up slightly from the 13.4% increase planned in the June survey and up sharply from a modest 3.2% planned in March. Smaller firms are also expected to revise up their combined capital spending plans to a solid 4.4% in fiscal 2023 from the 2.4% rise planned three months earlier and an unusually bullish 1.4% rise projected in March. Small businesses tend to forecast a decline at the start of the new fiscal year and revise up their plans later in the year.
Near-Term Sentiment Outlook Seen Flat
Looking three months ahead, major manufacturers expected by economists to project their sentiment will be unchanged at 6 in December while major non-manufacturers are forecast to report their sentiment will be also flat at 24.
Economists expect smaller manufacturers to project their December sentiment index will be -5, down slightly from an expected -4 for September, while smaller non-manufacturers are forecast to report their sentiment will edge down to 11 from an expected September figure of 12.
Companies are faced with elevated costs and labor shortages as well as slower demand from overseas. Consumers have been selective, spending less on home improvements and furniture while traveling and eating out more than they did a year earlier.
BOJ Watching Corporate Inflation Expectations
The focus is also on whether corporate inflation expectations are stable or sliding back.
In the June Tankan, companies saw a slightly slower increase in general prices for the next few years, compared to their expectations in the previous survey. They continue to expect inflation to fall below the BOJ’s 2% inflation target in the longer term.
Major manufacturers on average forecast an annual inflation rate of 2.2% a year from now (2.4% in the previous survey), 1.7% in three years (1.8%) and 1.6% in five years (1.6%). Large non-manufacturers expect inflation at 2.0% in a year (2.2% previously), 1.6% in three years (1.6%) and 1.4% in five years (1.4%).