By Max Sato
(MaceNews) – The Bank of Japan’s quarterly Tankan business survey is forecast to show confidence was flat or deteriorated in most categories in the June quarter, hit by Trump tariffs on vehicles, metals and other goods, with automakers lowering export prices to pay for higher import costs for U.S. customers, according to a Mace News survey of 10 economists.
In the non-manufacturing sector, high costs of living are keeping households wary, hurting retailers, while construction and transport firms face labor shortages. Department store chains also report that their sales have been pulled down by lower spending by visitors from other countries in light of a firmer yen and stricter duty-free shopping rules.
Looking ahead, firms tend to be cautious about their sales and profits three months ahead but some sectors may turn slightly optimistic about the outlook for U.S. trade talks with major economies as President Trump tries to ease high import costs and supply chain confusion caused by his own tariffs.
The BOJ will release the results of its Tankan business survey conducted from late May through late June at 0850 JST on Tuesday, July 1 (1950 EDT/2350 GMT Monday, June 30).
The median economist forecasts for the diffusion index on business conditions (the percentage of firms reporting improvement minus that of firms reporting deterioration) are as follows:
–Large manufacturers: 10 vs. 12 in Mar, 14 in Dec, 13 in Sept, 13 in June 2024 (the second straight drop)
–Large non-manufacturers: 35 vs. 35 in Mar, 33 in Dec, 34 in Sept, 33 in June 2024, 30 in Dec 2023 (flat after the first drop in 2 qtrs)
–Smaller manufacturers: -1 vs. 2 in Mar, 1 in Dec, 0 in Sept, -1 in June, -1 in Mar, 1 in Dec 2023 (the first drop in 5 qtrs)
–Smaller non-manufacturers: 15 vs. 16 in Mar, 16 in Dec, 14 in Sept, 12 in June (the first fall in 4 qtrs)
Major firms are expected to project that their plans for business investment in equipment and software would rise a combined 8.4% on the year in fiscal 2025 ending in March 2026, up from +3.1% (their first estimate) in the March.
Capex plans are generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
Smaller firms are also likely to revise up their combined capital spending plans to a 7.9% decrease from -10.0 (their first estimate) made about three months earlier. Small and medium firms tend to have conservative plans at the start of each fiscal year and revise them up later.
BOJ policymakers will analyze this and other pieces of data ahead of their next policy meeting on July 30-31, when the board will update their medium-term growth and inflation forecasts. They will discuss whether the uncertainty over trade rows and geopolitical risks have eased enough for them to consider raising interest rates.
At its latest meeting on June 16-17, the Bank of Japan’s nine-member board voted unanimously to maintain the target for the overnight interest rate at 0.5% for the third straight meeting after hiking it by 25 basis points (0.25 percentage point) in January.
The board also decided in an 8 to 1 vote to moderate the JGB purchase reduction pace to by about ¥200 billion a quarter in fiscal 2026 starting in April from by about ¥400 billion now, which will reduce the pace of its JGB buying to around ¥2.1 trillion in January-March 2027 from about ¥4.1 trillion in January-March 2027.
The bank is in the process of normalizing its policy stance after a decade-long large-scale easing period through 2022 and is set to continue gradually raising the overnight interest rate from the current level of 0.5%. Officials argue that real borrowing costs remain “significantly negative” because the BOJ has been cautious about raising rates even when inflation expectations are rising moderately.