TOKYO (MNI) – The Bank of Japan’s quarterly Tankan survey for March will show a drop in sentiment among many business sectors, hit by the slowing Chinese economy and heightened uncertainty over the global demand, with the caution set to remain in coming quarters economists forecast.
The median economist forecast for the headline diffusion index (DI) for sentiment among major manufacturers is +14, down from +19 in December, with forecasts from eight economists ranging from +11 to +16.
Companies, particularly major manufacturers, have been hit by falling exports as China slows and capital investment levels overseas weaken.
Non-manufacturers continue to struggle with labour shortages, although they have seen some benefit from high numbers of overseas visitors to Japan.
–NON-MANUFACTURERS DIP
The median forecast for the DI for major non-manufacturers is +22 in March, down from +24 in December. The forecasts ranged from +20 to +24.
The sentiment index for small manufacturers is projected to be +10 in March, down from +14 in the previous survey. The sentiment for small non-manufacturers is also forecast to slip to +9 from +11.
The diffusion index is calculated by subtracting the percentage of companies reporting deteriorating business conditions from those reporting an improvement. A positive figure indicates the majority of firms see better business conditions.
The BOJ will release the outcome of its Tankan quarterly business survey for March conducted from mid-February to March 29 at 0850 JST on April 1, (2350 GMT on March 31).
–CAPEX PLANS SLIP
BOJ officials are closely watching how capital investment plans in FY2019 evolve to see if the virtuous cycle from profits to spending is intact. Economists expect capex plans to be hit by the ongoing global uncertainty, although solid domestic demand and labour shortages are supportive to capex.
The median economist forecast for fiscal 2019 capital investment plans among major firms is -0.7% on year, down from a 2.3% rise in fiscal 2018 in the March Tankan 2018.
Initial capital investment plans by the major firms tend to be gradually revised up from March level, with BOJ economists usually more focused on revised capex plans in the June Tankan. However, they will at least look for comparisons of plans with those in previous years.
The forecast for capex plans in fiscal 2019 among smaller firms is -19.8%, down from a 16.8% fall in fiscal 2018 in the March Tankan 2018.
–INFLATION FORECASTS EYED
BOJ official will also eye corporate inflation forecasts, which are part of the March Tankan survey but will be released a day later on April 2. Inflation expectations have stopped falling but they have not shown any clear signs of a pickup in the face of weak consumer prices.
Firms on average expect an annual consumer inflation rate at 0.9% a year from now, up from 0.8% in September. Companies also expect a 1.2% rise five years out, but they expect three year ahead numbers to be unchanged from September.
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Source: MNI