–Tourism Discount Subsidies, Eased Covid Rules Support Services
–September Business Confidence Seen Mixed; Non-Manufacturers Cautious
–FY23 Capex Plans Among Large, Small Firms Expected to Be Revised Up
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 slightly in June for the first rise in seven quarters, led by the auto industry amid improved supply chains, while the government’s travel discount program and eased Covid border control continue lifting sentiment among service providers.
Looking ahead, manufacturers are likely to be optimistic about their near-term business conditions but non-manufacturers are expected to project a slip in their sentiment for September.
The BOJ will release the results of the Tankan survey conducted from late May through the end of June at 0850 JST on Monday, July 3 (1950 EDT/2350 GMT Sunday, July 2).
Many firms are believed to have returned their responses by mid-June, by when production and exports of automobiles had shown a solid recovery, thanks to eased shortages of semiconductors, mitigating the drag from slower global demand for production machinery.
During the survey period, the retail and tourism industries saw their business propped up by pent-up demand for traveling and dining out. The Japanese government ended most of its coronavirus border controls on April 29 at the start of the Golden Week holidays, boosting spending by foreign visitors. It also downgraded Covid-19 on May 8, allowing more people to travel and attend events freely without worrying about infections.
The 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 supported by demand for automation amid labor shortages in some sectors 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 July 27-28, at which the bank is expected to leave its basic easing stance unchanged to achieve stable 2% inflation with substantial wage growth while debating the costs and benefits of keeping the yield curve control framework including the negative short-term interest rate target.
Sentiment Seen Up Among Manufacturers, Non-Manufacturers
The Tankan diffusion index showing sentiment among major manufacturers is forecast to show its first increase in seven quarters in June, rising to 3 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 23 for the fifth straight quarter of 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 June, up from -6 (minus 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 the fifth consecutive improvement in June, rising to 10 from 8 in March, following 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
Major firms are projected to show their plans for business investment in equipment will rise a combined 9.6% on the year in fiscal 2023 ending in March 2024, revised up from the 3.2% increase planned in the March survey. Smaller firms are also expected to revise up their combined capital spending plans to a solid 4.0% in fiscal 2023 from the 1.4% rise planned three months earlier, which was an unusually bullish figure, given that they tend to forecast a decline at the start of the new fiscal year and revise up their plans later in the year.
Short-Term Sentiment Outlook Seen Mixed with Slight Changes
Looking three months ahead, major manufacturers are expected by economists to project their sentiment will edge up to 5 in September from an expected 3 in June while major non-manufacturers are forecast to report their sentiment will slip back to 21 after an expected slight improvement to 23.
Economists expect smaller manufacturers to project their September sentiment index will be -3, up slightly from an expected -4 in June, while smaller non-manufacturers are forecast to report their sentiment will decline to 8 from an expected June figure of 10.
Companies are faced with elevated costs and labor shortages as well as slower demand from overseas. Consumers are also trimming some spending amid rising costs for food, beverages and durable goods as many firms are still trying to pass high producer and import costs onto customers.
BOJ Also Watching Corporate Inflation Expectations
The focus is also on corporate inflation expectations.
In the March Tankan, companies saw a slight uptick in general prices for the next few years, compared to their expectations in the previous survey, but they expect prices to stabilize below the BOJ’s 2% inflation target in the longer term. Major manufacturers on average forecast an annual inflation rate of 2.4% a year from now (vs. 2.3% in the previous survey), 1.8% in three years (vs. 1.7%) and 1.6% in five years (vs. 1.6%).