–Govt’s New Travel Discount Program Supporting Consumer Spending
–Businesses Seen Cautious About Climate in March Amid Global Slowdown
–Smaller Firms Expected to Continue Revising Up Combined FY22 Capex Plans
By Max Sato
The BOJ will release the results of the Tankan survey conducted from early November until early December at 0850 JST Wednesday, Dec. 14 (1850 EST/2350 GMT Tuesday, Dec. 13). Many firms are believed to have returned their responses by late November, when Japan had already entered the eighth wave of the pandemic (its peak is projected to be around mid-January), although it didn’t seem to hamper business and consumer mobility.
The survey is also expected to show smaller companies further revised up their plans for investment in equipment in fiscal 2022 ending next March, and plans by large corporations, which had been already revised up sharply in June and September, were revised down slightly from three months earlier.
The BOJ will analyze this and other pieces of data ahead of its next policy meeting on Dec. 19-20, at which the bank is expected to leave its easing stance unchanged to continue supporting the economy’s gradual recovery from the pandemic-caused slump and achieve stable 2% inflation with substantial wage growth. Japan’s output gap remains in negative territory.
The focus is on the Jan. 17-18 meeting, when the bank releases its quarterly Outlook Report to provide updates on board members’ medium-term GDP and CPI forecasts.
Expected key points from the Tankan
* The Tankan diffusion index showing sentiment among major manufacturers is forecast at 6 in December (forecasts ranged from 3 to 8), down from 8 in September, 9 in June, 14 in March and 18 in both December and September last year, when it rose from 14 the previous quarter, according to the median projection by 12 economists compiled by Mace News.
* The Mace News median forecast for the index measuring sentiment among major non-manufacturers is 17 for December (ranging from 13 to 20), up from 14 in September, 13 in June, 9 in both March and in December last year. Real household spending posted the fifth straight year-on-year rise in October and maintained a gain on the month as people continued to eat out, shop and travel despite signs that another wave of coronavirus infections was emerging.
* Looking three months ahead, economists expect the sentiment index for major manufacturers to edge down to 5 (range: 3 to 11) in March and that for major non-manufacturers to also slip to 16 (range: 12 to 21).
* The sentiment index for smaller manufacturers is forecast at -6 (range: -8 to -4) in December, down from -4 in the previous three quarter and -1 in December last year. The index for their non-manufacturing counterparts is seen at 5 (range: 2 to 7), up from 2 in September, -1 in June, -6 in March and -4 in December 2021.
* Sentiment among smaller manufacturers for March is forecast to dip further to -7 (range: -10 to -5) and that for smaller non-manufacturers is seen edging lower to 4 (range: -1 to 6).
* 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.
* Amid global uncertainties, major firms are expected to slightly revise down their plans for business investment in equipment to a combined 20.8 percent year-over-year increase in fiscal 2022 ending next March, from a 21.5 percent gain projected in September, but the pace would be still high, compared to an 18.6 percent rise planned in June and an estimated 2.3 percent drop for fiscal 2021.
* Smaller businesses are likely to revise up their capex plans further for fiscal 2022 to a combined 4.2 percent rise after revising them up to a 1.3 percent rise in September from a 1.4 percent fall forecast in June. Their combined capital investment for fiscal 2021 is estimated to have increased 6.2 percent.
* The outlook remains uncertain, with the cost of living rising and real wages falling. Producer inflation in Japan eased only slightly to 9.3% in November from an upwardly revised 9.4% gain in October and hitting a 41-year high of 10.3% in September as utility charges stood nearly 50% above year-earlier levels and iron and steel prices remained high, up 20%, mitigating the effects of shrinking fuel costs and a slight drop in lumber prices. Consumer inflation in Japan soared in October as many more firms, hit by high producer and import costs amid the weak yen, jacked up retail prices for food, beverages, electronic appliances and tobacco, boosting the core CPI annual rate to a more than 40-year high of 3.6% with or without the direct impact of the sales tax hikes in 2014 and 1997.