By Chikafumi Hodo
TOKYO (MaceNews) – The Bank of Japan’s September Tankan business sentiment survey among large manufacturers is expected to climb to the highest level in nearly nine years as the rapid development of artificial intelligence has steadily boosted demand for semiconductors, data centers and other AI-related sectors, supporting an improvement in large manufacturers’ business sentiment.
Sentiment among non-manufacturers is expected to remain solid but could deteriorate slightly as rising costs caused by higher inflation, rising import values amid the yen’s weakness and volatile energy prices, as well as higher interest rates, are expected to weigh on sentiment among non-manufacturers, including businesses such as construction, real estate, hotels and retailers.
The September reading of the Tankan diffusion index (DI) for large manufacturers is expected to stand at 25, up from 22 in June. The September DI is expected to match the highest level seen in the December 2017 survey. The DI is seen improving for the sixth consecutive survey, the longest such streak in 16 years, since it climbed steadily from minus 58 in the March 2009 survey to plus eight in September 2010.
Sentiment among small manufacturers is also expected to improve to 11 in September from nine in June. The DI for small manufacturers is expected to improve for the second consecutive survey and mark the eighth straight positive reading.
Non-Manufacturers Seen Slowing
Despite the steady improvement among large manufacturers, underlying sentiment among Japanese corporations in general lacks convincing momentum amid a slew of uncertainties surrounding businesses. Geopolitical concerns in the Middle East have kept energy, oil product and chemical prices volatile and continued to raise concerns over material shortages. Higher inflation is prompting interest rate hikes by Japanese and U.S. central banks this month, and such monetary tightening could have an impact on a wide range of industries.
Sentiment among large nonmanufacturers is expected to edge down to 36 in September from 37 in June, while the diffusion index for small nonmanufacturers is also expected to ease to 14 from 15.
Domestic corporate goods prices have risen due to the impact of soaring resource and energy prices, and higher costs are likely to weigh on business conditions for nonmanufacturers. In addition, inbound demand has recently been losing momentum, and improvements in business conditions are expected to pause in sectors such as retail and accommodation and eating and drinking services.
Capex Plans Higher
Capital expenditure plans are expected to remain solid, with large companies likely to revise up their plans amid strong investment demand in semiconductor-related fields and data centers, driven by growing AI demand, as well as strong medium- to long-term investment demand for green transformation and supply chain resilience. Smaller firms are also expected to follow suit and revise their plans upward, as they typically begin the fiscal year with relatively conservative spending plans before gradually revising them higher as the year progresses.
Capital expenditure plans among large firms are expected to rise 12.1% from a year earlier in the September survey, accelerating from 11.7% in June. Smaller firms are also expected to revise up their spending plans to minus 4.8% in September from minus 8.3% in June.
Still, spending plans may become less certain in the coming months as uncertainty surrounding the Middle East situation remains high. In addition, yields on 10-year Japanese government bonds climbed above 3% in early September for the first time in more than 30 years. If higher resource prices and supply constraints become more severe, or if long-term interest rates rise sharply, companies may need to adopt more conservative investment plans.