— BOJ Survey Also Shows Companies Revise Up FY21 Capex Plans
By Max Sato
(MaceNews) – Japanese firms in many industries reported their sentiment improved sharply in June from three months earlier on recovering global demand and accelerated vaccinations, but some sectors were cautious about their outlook amid fears of coronavirus variants wreaking havoc, according to the Bank of Japan’s quarterly Tankan business survey released Thursday.
The survey also showed that many sectors revised up their plans for business investment in equipment in fiscal 2021 ending next March in line with a recovery in global demand.
The BOJ’s nine-member board will digest the Tankan and other indicators as well as reports from branch managers to update its medium-term growth and inflation forecasts in the bank’s quarterly Outlook Report to be released after its next policy meeting scheduled for July 15-16.
The bank is expected to leave its easing stance unchanged in coming months.
At its last meeting on June 17-18, the BOJ decided to extend the term of its special COVID-19 fund-supplying operations by six months, again, until the end of March 2022 to encourage financial institutions to lend more to needy companies. It will also launch a new funding scheme, by year-end, to support banks that are lending to or investing in projects that are designed to address climate change issues.
The key points from the BOJ Tankan conducted from May 27 until June 30.
The Tankan diffusion index showing sentiment among major manufacturers jumped to an over two-year high of +14 in June from +5 in March and -10 in December, improving for the fourth straight quarter. It was largely in line with the median economist forecast of +15.
Sharp improvements were reported by producers of materials ranging from lumber and chemicals to steel and non-ferrous metals, although oil refiners saw their sentiment slip amid rising costs of crude oil. Production machinery makers continued to see good times now and ahead, thanks to a global move to expand capacity to meet strong demand from China and the U.S. Carmakers were bearish about the current status, hit by global semiconductor shortages, but they are more upbeat going forward on hopes of increased supplies.
Looking ahead, major manufacturers expect their sentiment to edge down to +13 in September (the median economist forecast was +18), with materials producers forecasting a pullback.
The Tankan index measuring sentiment among major non-manufacturers rose to +1 in June from -1 in March and -5 in December, coming in softer than the median economist forecast of +3 but showing the first positive figure in five quarters.
The slight improvement was led by “services for individuals” as the government announced on June 17 that it was easing some restrictions on economic activity in Tokyo and other prefectures, effective June 20, while retaining slightly less strict COVID-19 emergency measures until July 11. Wholesalers also reported better sentiment but retailers were down. Confidence among hotels and restaurants improved slightly but their indexes remained deeply in negative territory.
Major non-manufacturers projected their sentiment would be rise further to +3 in September, with two sectors – services for individuals as well as hotels and restaurants – forecasting better times ahead, probably on hopes that more people will have received at least the first shot of coronavirus vaccination.
Confidence among smaller businesses was also shored up on higher commodities prices, global capex demand and the recent pickup in the pace of vaccination by the Japanese government. The index for small and medium manufacturers rose to -7 in the latest survey from -13 three months earlier (the median forecast -5). The index for their non-manufacturing counterparts inched up to -9 from -11 (the median forecast -9).
Smaller manufacturers expect their confidence to climb further to -6 in September from -7 in June (the median forecast -3), led by producers of food and textiles. The automobile industry also projected a rebound. In contrast, smaller non-manufacturers expect their sentiment index to slip to -12 from -9 (the median forecast -8) as seven of the 12 industries forecast worse sentiment while hotels and restaurants foresaw a sharp improvement.
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.
FY21 Capex Plans Seen Firmer Than in FY20
The Tankan showed that major firms planned to increase their business investment in equipment by a combined 9.6% in fiscal 2021, coming in stronger than the median economist forecast for +7.2%. In the previous survey, their plans called for a 3.0% rise.
Smaller businesses expect their capex plans for fiscal 2021 to rise a combined 0.9%, also firmer than the median forecast of a 2.6% drop. In March, those firms had planned a 5.5% decrease.
Firms See Yen Slide Vs. Dollar, Euro in FY21
The average dollar/yen exchange rate assumed by all firms in all industries for fiscal 2021 was Y106.71, slightly firmer than Y106.07 in the March Tankan. Companies assumed the euro/yen forex rate to average at Y125.27, up sharply from Y123.10 three months earlier.
—
Contact this reporter: max@macenews.com.
Content may appear first or exclusively on the Mace News premium service. For real-time delivery contact tony@macenews.com. Twitter headllines @macenewsmacro.