–Covid Lockdowns in China, High Producer Costs Weigh on Factory Operators
–Services Seen Upbeat on Japan’s Eased Covid Rules, Summer Spending Hopes
–Business Confidence Projected to Improve in September Amid Uncertainty
–Firms, Large and Small, Expected to Revise Up Their Combined FY22 Capex Plans
By Max Sato
The BOJ will release the results of the Tankan survey conducted from late May until late June at 0850 JST Friday, July 1 (1950 EDT/2350 GMT Thursday, June 30). Many firms are believed to have returned their responses by mid-June, before the two-month Covid lockdown in Shanghai, the trade hub, was lifted at the end of the month.
The survey is also expected to show both large and smaller companies revised up their plans for investment in equipment in fiscal 2022 that began on April 1. The drag from the pandemic is fading and some plans may be carried over from the previous quarter, when the economy was hit by a spike in Covid cases and supply delays were exacerbated by the Ukraine war. Capex is supported by potential demand for automation, government-led digitization and emission control.
The BOJ will analyze this and other pieces of data ahead of its next policy meeting on July 20-21, at which the bank is expected to leave its easing stance unchanged as the bank sees the recent spike in inflation from around 1% to just above 2% as only temporary. Unlike in the US, rising consumer prices are not backed by excess demand and Japan’s output gap remains in negative territory.
The bank’s branch managers will report on regional economic conditions at a quarterly meeting in Tokyo on July 11 ahead of the July 21 release of the quarterly Outlook Report, in which the bank 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 12 in June (forecasts ranged from 10 to 14), down from 14 in March and 17 in December, when it was unchanged from September, according to the median projection by 10 economists compiled by Mace News. Two of the economists predicted the index remained at 14 in June.
* The Mace News median forecast for the index measuring sentiment among major non-manufacturers is 13 for June (ranging from 12 to 19), up from 9 in March, 10 in December and 2 in September.
* Looking three months ahead, economists expect the sentiment index for major manufacturers to rebound slightly to 14 (range: 11 to 15) in September and that for major non-manufacturers to improve further to 16 (range: 12 to 19).
* The sentiment index for smaller manufacturers is forecast at -7 for June (range: -10 to -1), down from -4 in March, -1 in December and -3 in September. Two of the 10 economists expect the index to improve slightly. The index for their non-manufacturing counterparts is seen at -3 (range: -4 to +5), up from -6 three months earlier and matching -3 in December.
* Sentiment among smaller manufacturers for September is forecast to be unchanged at -7 (range: -11 to 0) and that for smaller non-manufacturers is seen at -2 (range: -4 to +5), up slightly from a projected -3 in June.
* 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 Tankan is also expected to show that major firms, backed by profit gains on global reopening demand for exports, plan to increase their business investment in equipment by a combined 8.4% (forecasts by nine economists range from +5.4% to +11.3%) in fiscal 2022, up from a 2.2% rise planned in March (their first estimate).
* Smaller businesses are expected to report their capex plans for fiscal 2022 would fall by a combined 7.0% from the previous fiscal year (range: -11.4% to -4.8%), revised up a 11.4% drop projected in the previous survey. Smaller firms are expected to raise their plans later in the fiscal year, as they tend to do.
* The outlook is uncertain for many firms. Supply bottlenecks for carmakers and chipmakers may ease but producer costs remain high for many sectors. People are expected to dine out, travel and go to events more freely in the summer without strict Covid rules while gradually easing border restrictions are raising hopes that foreign tourists will return to Japan. The heat wave that has brought in record high temperatures for June in some cities could boost demand for summer clothing and beverages but dangerously hot and humid weather could also discourage people from going out.
* The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from May 25 to May 31 and released June 8 indicated that sentiment continued improving on expectations for leisure spending in the summer despite concerns about rising costs for food and energy.