–Major Non-Manufacturer Confidence Seen Unchanged; Inbound Spending High but Labor Shortages Bite
–Firms in Many Sectors Likely to Be Wary of Near-Term Outlook Amid Slowing Global Growth
–Large Firms Seen Revising Down Fiscal 2023 Capex Plans; Small Firms to Raise Theirs Further
By Max Sato
(MaceNews) – The Bank of Japan’s quarterly Tankan business survey is expected to show confidence among major manufacturers in Japan edged up in December on improved supply chains, a bottoming chip market and easing import costs after a sharp improvement in September, but they are expected to remain cautious about their near-term outlook amid slowing global growth and widespread domestic labor shortages.
The BOJ will release the results of its Tankan business survey conducted from mid-November through mid-December at 0850 JST on Wednesday, Dec. 13 (1850 EST/2350 GMT Tuesday, Dec. 12).
The Tankan diffusion index showing sentiment among major manufacturers likely posted its third straight quarterly increase in December, rising to 10 after jumping to 9 in September from 5 in June.
The index measuring sentiment among major non-manufacturers is forecast at 27 in December, unchanged from September, when it improved for the sixth consecutive quarter to a 32-year high (the best reading since 33 in December 1991).
Restaurants, hotels, retail stores and some other service providers continued benefiting from widely eased Covid public health restrictions, which have supported travel and eating out as well as spending by foreign visitors, which has recovered to pre-pandemic levels.
Major firms are expected to project their plans for business investment in equipment will rise a combined 12.7% on the year in fiscal 2023 ending in March 2024, revised down from the 13.6% increase planned in the September survey but still higher than a modest 3.2% rise planned in March.
By contrast, smaller firms are expected to revise up their combined capital spending plans further to a 9.8% rise in fiscal 2023 after jacking them up to an 8.0% rise in September from a 2.4% increase planned in June and an unusually bullish 1.4% rise projected in March.
BOJ policymakers will analyze this and other pieces of data ahead of their next policy meeting on Dec. 18-19, when they are expected to leave the bank’s basic easing stance unchanged to help achieve stable 2% inflation with sustained wage growth while discussing whether it is necessary to tweak its yield curve control framework further and when to lift the negative short-term interest rate target.
Japan’s output gap slipped back into negative territory in the third quarter after turning slightly positive in the second quarter and previously staying negative for three and a half years.
Many firms are believed to have returned their responses by late November. By then, preliminary GDP data had shown Japan’s economy posted its first contraction in three quarters in July-September as private inventories plunged, net exports slipped after a sharp rebound in April-June, public works spending slowed, pent-up demand for eating out and traveling waned and firms turned cautious about capital investment.
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.
The sentiment index for smaller manufacturers is forecast to tick up to -4 (minus 4) in December from -5 (minus 5) recorded in both September and June. The index for their non-manufacturing counterparts is seen unchanged at 12 after improving for the sixth consecutive quarter in September.
Near-Term Sentiment Outlook Dimmer
Looking three months ahead, major manufacturers are expected by economists to project their sentiment will slip back to 9 in March from an estimated 10 in December while major non-manufacturers are forecast to report their sentiment will also inch down to 26 from 27.
Economists expect smaller manufacturers to project their March sentiment index will dip to -6 after improving to -4 in December, while smaller non-manufacturers are forecast to report their sentiment will fall back to 9 from an expected December figure of 12.
Japan’s real household spending posted its eighth straight drop on the year in October, down a smaller-than-expected 2.5%, after a 2.8% dip in September, as high costs for daily necessities promoted many to remain frugal and the lingering heat wave damped demand for autumn clothing and heaters, data released Friday by the Ministry of Internal Affairs and Communications showed. Pent-up demand for eating out and traveling had already shown slower momentum in the previous month.
BOJ Watching Corporate Inflation Expectations
The focus is also on corporate inflation expectations.
In the September Tankan, manufacturers, big and small, saw a slightly slower increase in general prices for the coming 12 months, compared to their expectations in the previous survey, while non-manufactures projected no change.
Large manufacturers predicted a slight pickup in inflation in three to five years ahead, but other sectors saw no to little change. Overall, firms continued to expect inflation to fall slightly below the BOJ’s 2% inflation target in the longer run.
Major manufacturers on average forecast an annual inflation rate of 2.1% a year from now (2.2% in the previous survey), 1.8% in three years (1.7%) and 1.7% in five years (1.6%). Large non-manufacturers expect inflation at 2.0% in a year (2.0% previously), 1.6% in three years (1.6%) and 1.5% in five years (1.4%).