By Max Sato
— Companies Plan More Active Capex in FY’21 Vs FY’20
— Firms Assume Dollar/Yen To Fall Slightly in FY21, Euro/Yen To Rise
(MaceNews) – Japanese firms in many industries reported their sentiment improved in March from three months earlier, thanks to a pickup in global and domestic demand on hopes that vaccines will help contain the spread of the pandemic, but the majority remains cautious about their outlook, according to the Bank of Japan’s quarterly Tankan business survey released Thursday.
The survey also showed that companies generally planned higher business investment in equipment in fiscal 2021 over the year that ended Wednesday. As seen in the latest GDP data, capex had played catchup with other growth drivers like exports and consumption in the final quarter of 2020.
Japanese exports have been picking up but at a slower pace, with carmakers lowering output in light of global semiconductor shortages. Private consumption is mixed: Households are spending more on groceries, electric appliances and furniture due to stay-home pandemic lifestyles while cutting expenditures on eating out and traveling.
The BOJ’s nine-member board will use the Tankan and other indicators 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 April 26-27.
The bank is expected to leave its very accommodative policy stance unchanged in coming months, now that it has tweaked the policy framework so that it can respond to downturns by shifting the bond yield curve and changing the amounts of asset purchases in a more nimble and sustainable manner.
- The key points from the BOJ Tankan conducted from Feb. 25 until Mar. 31:
- The Tankan diffusion index showing sentiment among major manufacturers surged to +5 in March from -10 in December and -27 in September, improving for the third straight quarter and coming in stronger than the median economist forecast of 0 (zero). Sharp improvements were reported by oil refineries amid rising crude oil prices, production machinery makers thanks to Chinese economic recovery, non-ferrous metal firms, steel mills and carmakers. Of the 18 categories of the sector, three – shipbuilding, textiles and food and beverages – said their confidence fell slightly from three months earlier.
- Looking ahead, major manufacturers expect their sentiment to slip to +4 in June (the median economist forecast was +4), with oil refineries, processed metals and non-ferrous metals makers particularly cautious.
- The Tankan index measuring sentiment among major non-manufacturers rose to -1 in March from -5 in December from -12 in September, coming in firmer than the median economist forecast of -5. The improvement was led by real-estate, goods leasing and rentals, services for businesses and information services. In contrast, sentiment plunged among hotels and restaurants as the government in late December suspended its controversial program to subsidize hefty discounts for domestic traveling and eating out aimed at supporting the tourism industry. Retailers and services for individuals also remained depressed amid the pandemic.
- Major non-manufacturers projected their sentiment would be flat at -1 in June, with hotels and restaurants as well as service providers for individuals expecting a partial rebound from very low levels (the median forecast was -2). Contractors, retailers and information providers projected worse sentiment ahead.
- Confidence among smaller businesses also improved. The index for small and medium manufacturers jumped to -13 in the latest survey from -27 three months earlier. The index for their non-manufacturing counterparts edged up to -11 from -12.
- Smaller manufacturers expect their confidence to rise slightly to -12 in June from -13 in March, led by production machinery makers and steel mills, but 10 of the 18 categories in this sector saw worse sentiment in three months. Smaller non-manufacturers expect their sentiment index to fall to -16 from -11 as contractors, electric and gas utilities and communications providers were cautious.
- 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.
- Capex Plans Seen Firmer Than in FY’20
- The Tankan showed that major firms planned to increase their business investment in equipment by a combined 3.0% in fiscal 2021, coming in stronger than the median economist forecast for +1.4%. Major firms planned a decrease of 3.8% for fiscal 2020, which was revised down from a 1.2% drop projected three months earlier.
- Smaller businesses expect their capex plans for fiscal 2021 to fall a combined 5.5%, firmer than their latest plan of a 11.1% decrease for fiscal 2020. In December, those firms planned a 13.9% decrease for fiscal 2020. Small businesses tend to revise up their plans later in the fiscal year.
- Firms See Softer Dollar, Firmer Euro
- The average dollar/yen exchange rate assumed by all firms in all industries for
fiscal 2020 was Y106.66, little changed from Y106.79 in the December Tankan poll. Companies assumed the euro/yen forex rate to average at Y121.76, up from Y121.04 three months earlier. - For fiscal 2021, companies assumed the dollar would fall slightly to Y106.07 but expected the euro to rise to Y123.10, both their first estimates.
- * Japanese exporters’ break-even real average dollar/yen rate for fiscal 2002 was Y99.80, compared to Y100.20, according to the Annual Survey of Corporate Behavior conducted in January by the Cabinet Office. The government survey also showed exporters projected the dollar to depreciate to Y105.90 a year ahead.
THIS STORY CONTAINS SOME NUMBERS CORRECTED FROM ORIGINAL VERSION AS WELL AS SOME CORRECTED TEXT
—
Contact this reporter: max@macenews.com.
Content may appear first or exclusively on the Mace News premium service. For real-time delivery in entirety contact tony@macenews.com. Twitter headlines @macenewsmacro.