— See Separate Table For Details Of Individual Forecasts

TOKYO (MNI) – The Bank of Japan’s Tankan quarterly survey gauging
business sentiment among major Japanese manufacturers will show the
first fall in two quarters in June, according to the median forecast of
economists surveyed by Market News International.

The BOJ will release the outcome of its June Tankan survey at
0850 JST on Friday, July 1 (2350 GMT Thursday).

The headline diffusion index (DI) is forecast at -7 in June, down
from +6 in the previous survey in March. The forecast level for the June
survey would be the lowest since -14 marked in March 2010.

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.

Industrial production, which has a large impact on major
manufacturers’ DI, rebounded by 1.6% in April from the previous month,
after plunging a record 15.5% in March.

The government survey of firms showed that output will rise 8.0% in
May and a further 7.7% in June but many economists believe that output
will not recover to pre-disaster levels by June.

Looking ahead, economists also forecast that the Tankan index for
major manufacturers will improve to +3 in September, thanks to expected
strong demand from both the private and public sectors for
reconstruction of quake-hit areas.

The Tankan’s major manufacturer index bottomed out at -58 in March
2009 following the collapse of Lehman Brothers in September 2008. The
index showed a gradual recovery to +8 in September 2010, which was the
highest since +11 in March 2008.

Meanwhile, the major non-manufacturers’ index is expected to stand
at -4 in June, down from +3 in March and posting the lowest level since
-5 marked in June 2010.

The small business DI among manufacturers is seen dropping to -21
in June from -10 in March. The expected June level would be the lowest
level since -30 seen in March 2010.

The sentiment index for small non-manufacturers is expected to slip
to -27 in June from -19 in March, which would be the lowest since -31
seen in March 2010.

The June Tankan is also forecast to show that capital investment
plans by major firms in fiscal 2011 will rise to 2.3%, improving from a
0.4% drop projected in the March Tankan.

Capex plans by small firms for fiscal 2011 are expected to show a
21.3% y/y decline.

Small firms tend to revise up their capital investment plans
gradually as the fiscal year progresses.

The quarterly government survey conducted on May 15 and released on
June 14 showed companies expected their combined capital spending to
rise 4.9% on year in fiscal 2011, improving from -0.5% seen in the same
survey three months before.

The BOJ is expected to conduct the June Tankan survey between late
May and June 30, with 70-80% of surveyed firms responding by the BOJ’s
suggested date of June 13.

** Market News International Tokyo Newsroom: 81-3-5403-4838 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$,MT$$$$]