TOKYO (MNI) – The Bank of Japan’s quarterly Tankan business survey
for March will show that sentiment among major manufacturers continued
to improve in March as exports and production benefitted from the global
recovery led by emerging countries, economists said.

The widely expected improvement in the sentiment among major
manufacturers would be the fourth consecutive quarterly gain.

Economists also expect sentiment among both major non-manufacturers
and smaller firms to rise compared to three months ago.

The BOJ will release the results of the latest Tankan survey at
0850 JST on April 1 (2350 GMT on March 31).

The benchmark diffusion index for major manufacturers is expected
to improve to -12 from -25 in the December Tankan (revised down from -24
due to a change in sampling), according to the median forecast of an MNI
survey of 13 economists.

The forecasts ranged from -8 to -17.

The BOJ is making a routine reshuffle of the sample firms in the
Tankan survey, effective with the March poll — removing 98 companies
and adding 1,666 — following a government update on its census on
firms.

As a result, the total number of sample firms will increase to
11,684 for the March survey from 10,116 in December.

“The comparison between the pre- and post-revision figures for the
December 2009 survey showed that there were only minor differences for
both sentiment and annual business projections in general,” a BOJ
official told reporters earlier this month.

Nikko Cordial Securities chief market economist Mari Iwashita said
the improvement in major manufacturer sentiment is expected to have
accelerated in March as both exports and production have shown increases
from year-earlier levels.

“It is natural that the number of corporate executives who said
(conditions are) ‘bad’ has fallen as concern over a strong yen and weak
stock prices has eased. But improvement in non-manufacturer sentiment
appears to be small, compared with that for major manufacturers,” she
said.

Iwashita expects the diffusion index for major manufacturers to
improve to -8 from -25 and the DI for major non-manufacturers to rise to
-12 from -21.

BNP Paribas chief economist Ryutaro Kono said the pace of
improvement in corporate sentiment is likely to have strengthened
against the backdrop of recovering exports and improving consumer
spending.

“There is a possibility that the recent rise in the stock market as
well as improving labor and income conditions have contributed to
boosting corporate sentiment,” Kono said.

But some economists forecast that the pace of improvement in
sentiment among small businesses may have slowed as they don’t benefit
directly from higher exports.

BOJ officials are focused on what the survey says about capital
investment plans for fiscal 2010, which begins April 1.

The BOJ sees a recovery of business investment in equipment as a
key to the economy gaining upward momentum in the second half of the
fiscal year (October 2010 to March 2011).

Capital spending plans by major manufacturers in fiscal 2010 are
forecast by economists to rise around 2.1% on average from a year
earlier.

This compares with -28.4% (revised down from -28.2% due to the
sample change) for fiscal 2009 projected in the December Tankan.

The March Tankan will see the first capex forecasts by firms for
fiscal 2010, although their plans at this stage are considered to be
provisional.

Sumitomo Mitsui Asset Management chief economist Akiyoshi Takumori
said he expects capex plans by major manufacturers to rise about 1% in
fiscal 2010 from a year earlier, given the recent recovery in machinery
orders, but he sees capex by all major firms dropping by 2.5% in the
coming fiscal year.

A Nikkei survey of economists showed that their average forecast
for fiscal 2010 capital spending by all major firms in the March Tankan
survey was -1.3% (forecast range: -10.0% to +4.0%).

The BOJ is maintaining a cautious view on capital spending plans
for fiscal 2010 given that many firms continue to have excess production
capacity.

“Amid the strong sense of excessive capital stock among firms,
business fixed investment is likely to remain more or less unchanged for
the time being, despite an improvement in corporate profits,” the BOJ
said in its monthly economic report for March.

“The pace of improvement of the economy is likely to remain
moderate until around the middle of fiscal 2010. Thereafter, as
improvements in the corporate sector originating from exports are
expected to spill over to the household sector, the growth rate of the
economy is likely to rise gradually,” it added.

The diffusion index for major non-manufacturers is expected to rise
to -17 from -21 (revised up from -22 due to the change in samples) in
the previous Tankan, according to forecasts by economists.

Their forecasts ranged between -12 and -20.

Despite an improvement in business sentiment, BOJ policymakers are
expected to maintain their cautious outlook for economic growth and a
rebound prices and consider easing credit further if necessary.

At its last policy-setting meeting on March 16-17 the board voted
unanimously to leave the target for the overnight lending rate among
commercial banks practically zero, at 0.1%, while expanding the scale of
its new fixed-rate money market operation to add more liquidity in a
split vote.

After the Tankan release, market participants will be focused on
the BOJ’s semi-annual Outlook Report due out after a one-day
policy-setting meeting on April 30. This report will include the board’s
latest forecasts for economic growth and inflation through the end of
fiscal 2011.

The forecasts for the DI by major and smaller firms

Major companies Smaller Firms
Manufacturers Non- Manufacturers Non-
Manufacturers Manufacturers

Sumitomo Mitsui
Asset Management: -8 -13 -34 -33
Nikko Cordial: -8 -12 -32 -33
Morgan Stanley: -9 -16 -33 -34
Meiji-Yasuda
Life Insurance: -10 -14 -32 -31
Daiwa Institute
Of Research: -12 -17 -33 -34
Dai-Ichi Life
Research Institute: -12 -17 -29 -30
Nomura Securities: -12 -15 -34 -32
BNP Paribas: -13 -16 -30 -31
Japan Research
Institute: -14 -18 -35 -34
Mitsubishi
Research Institute: -14 -18 -33 -34
Mizuho Securities: -16 -20 -31 -36
Fujitsu Research: -16 -17 -35 -31
Mitsubishi UFJ
Research: -17 -18 -32 -33
————————————————————————
Median: -12 -17 -33 -33
————————————————————————
BOJ December Tankan Results:
-25 -21 -41 -34
————————————————————————
BOJ December Tankan Forecasts for March DI:
-19 -18 -40 -41
————————————————————————

(Some December figures have been revised after the BOJ conducted a
routine reshuffle of sample firms in the survey.)

tokyo@marketnews.com
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