TOKYO (MNI) – The Bank of Japan’s June Tankan survey will show that
the sentiment of major manufacturers continues improving, thanks to
increasing exports and production on the back of the recovering economy
at home and overseas, especially emerging countries, economists and
analysts said.

The expected improvement in sentiment at major manufacturers will
be the fifth consecutive quarter, with some economists expecting a big
improvement.

The Tankan will likely show that the benefit of the recovering
economy based on the increase in exports and production is filtering
through to major non-manufacturers as well as smaller firms, the
economists say.

But the degree of improvement in corporate sentiment among those
firms would likely be small as the improvement of the labor and income
situation is being limited.

Corporate executives at smaller firms continue to have a cautious
view on the future economy amid uncertainty over the recovery of private
demand.

The BOJ will release the results of the June Tankan survey at 0850
JST on July 1 (2350 GMT on June 30).

The benchmark diffusion index by major manufacturers is expected to
have improved to -2 from -14 at the previous March Tankan survey,
improving for the fifth consecutive quarter, according to the forecasts
by the economists.

The forecasts for the DI range between +2 and -5.

Mitsubishi UFJ Morgan Stanley Securities’ chief economist Yuji
Shimanaka expects the DI by major manufacturers to have improved to +2
from -14 at the previous survey.

If the DI is in positive territory it would be the first time since
June 2008, when it was at +5 before the failure of the Lehman Brothers
in September, 2008.

Japan’s exports continue increasing on the back of the recovering
global economy and personal spending remains solid. They will have
contributed to boosting the major DI sharply, Shimanaka noted.

Japanese industrial production rose 1.3% in April from the previous
month, unrevised from the preliminary reading, backed by demand from
general machinery makers and refineries.

Output posted the second consecutive month-on-month increase after
+1.2% in March and the 13th gain in the last 14 months. Output has
gained every month since March 2009 except for a 0.6% fall in February
this year.

Japan’s trade surplus stood at Y742.3 billion in April as exports
posted the fifth straight year-on-year rise on recovering global demand
for Japanese cars and semiconductors.

Japan posted the 13th consecutive month of a trade surplus
following an upwardly revised surplus of Y952.0 billion in March
(preliminary +Y948.9 billion). In April 2009, Japan posted a trade
surplus of only Y48.99 billion.

Nikko Cordial Securities’ chief market economist Mari Iwashita
expects the DI by major manufacturers to show a big improvement, such as
to -5 from -14 at the previous survey.

She also predicts capital spending plans by major firms to be
revised up to 5.6% from a year earlier, sharply improving from a 0.4%
fall at the March survey.

Meanwhile, Daiwa Institute of Research’s senior economist Masahiko
Hashimoto expects the major DI to improve to -3 as the recovering
profits led by the increase in exports and production will have
contributed to improving the DI.

But he expects major firms to increase their capital spending by
5.9% on year this fiscal year.

Mitsubishi UFJ Morgan Stanley Securities expects capital spending
by major firms to rise 7.3% on year, sharply up from a 0.4% fall at the
previous survey.

BOJ officials as well as private economists expect corporate
sentiment to have improved from three months ago.

The officials are more focused on how strongly capital investment
plans will be revised up as the central bank expects capital spending to
pick up with the recovery in corporate profits.

The BOJ also expects improvements in the employment and income
situation to gradually become evident as corporate activity becomes more
vibrant.

BNP Paribas’s chief economist Ryutaro Kono predicts capital
spending by major manufacturers to be revised up sharply to 13.2% on
year from a 0.9% fall at the previous survey.

He noted that the conditions have improved from when firms were
saddled with a large surplus of facilities, in the wake of brisk demand
from emerging countries.

The quarterly business survey by the Ministry of Finance released
on June 15 showed that capital spending by all firms is likely to rise
9.2% on the year, sharply improving from a 5.7% fall in the prior survey
for the January-March period.

Attention should be paid to how strongly private firms have been
hit by the financial turmoil in Europe.

The diffusion index for major non-manufacturers is expected to have
improved to -7 from -14 at the previous Tankan.

The forecasts for the DI range between -4 and -9.

The Tankan results will likely prompt BOJ official to hold the view
that Japan’s economy is likely to be on a recovery trend and the pace of
economic growth will likely increase, albeit at a moderate pace.

The forecasts for the DI by major and smaller firms

Major companies Smaller Companies
Non- Non-
Manufacturers Manufacturers Manufacturers Manufacturers
Mitsubishi UFJ Morgan Stanley
Securities: +2 -5 -23 -26
Japan Research
Institute: -2 -4 -25 -28
Daiwa Institute
Of Research: -3 -5 -23 -29
Mitsubishi Research
Institute: -3 -7 -23 -27
BNP Paribas: -4 -7 -21 -27
Fujitsu Research: -4 -8 -24 -28
Mitsubishi UFJ
Research: -5 -9 -28 -26
Nikko Cordial: -5 -7 -25 -30
————————————————————————
Median: -2 -7 -25 -28
————————————————————————
BOJ March Tankan Results
-14 -14 -30 -31
————————————————————————
BOJ March Tankan Forecasts for
June DI: -8 -10 -32 -37

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