— See Separate Table For Details Of Individual Forecasts
TOKYO (MNI) – The diffusion index (DI) gauging business sentiment
among major Japanese manufacturers will show the first drop in seven
quarters in the Bank of Japan’s Tankan quarterly business survey for
December, according to the median forecast of economists surveyed by
Market News International.
The headline DI is forecast at +3 in December, down from +8 in
September and the lowest level since +1 in June. The last drop was seen
in March 2009, when the index slumped 22 points to -31.
But economists polled said a drop in sentiment for the December
quarter would not immediately prompt the central bank to consider
further credit easing because other indicators have already shown that
business sentiment has been hit by yen strength and slower global
demand.
The BOJ will release the outcome of its December Tankan survey at
0850 JST on Wednesday, Dec. 15 (2350 GMT Tuesday).
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 butter business conditions.
Sentiment is expected to have been hurt by slowing overseas demand,
the yen’s rise this autumn to a series of 15-year highs against the U.S.
dollar and the end to the government’s subsidy program for promoting
purchases of energy efficient vehicles in September, economists said.
According to the previous Tankan survey in September, major
manufacturers assumed an average dollar-yen exchange rate of Y89.66 in
their business planning, compared with a trading range of Y83 to Y84
since then.
Industrial production, which has a strong correlation with major
manufacturers’ sentiment, logged the fifth straight monthly drop in
October, down by 1.8% from the previous month, bringing the output index
down to 91.1, the lowest since December 2009.
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, which was the
highest since +11 in March 2008.
The major manufacturers’ index is forecast to fall further to zero
in March next year.
“A further deterioration in the DI is highly possible due to the
uncertain outlook for the U.S. and European economies,” Akira Maekawa,
senior economist at Global Futures and Forex.
The sentiment among major non-manufacturers is also expected to
mark the first drop in seven quarters. Their DI is forecast at zero in
December, which would be the lowest level since -5 in June. After
bottomed at -31 in March 2009, the index recovered to +2 in September
his year, the highest level since +10 in June 2008.
Masamichi Adachi, senior economist at JP Morgan, predicted in a
report for clients that: “Major non-manufacturers’ DI will deteriorate
to -2, which was forecast in the September Tankan, reflecting lingering
deflation and the slowdown in manufacturing.”
The major non-manufacturers’ DI is expected to fall further to -3
in March.
As for small businesses, their manufacturers’ DI is expected to
have dropped to -19 in December from -14 in September. The December
prediction would be the lowest level since -30 in March 2010.
The sentiment among small manufacturers, which has been in negative
territory since March 2008, bottomed out at -57 in March 2010 and June
2009.
Meanwhile, the sentiment index for small non-manufacturers is
expected to slip to -24 in December from -21 in September, marking the
lowest level since -26 in June.
The index for small non-manufacturers has been below zero for more
than 18 years since August 1992, hitting bottom at -44 in June 2009.
Capital investment plans by major firms in fiscal 2010 are expected
to show a 2.7% rise, up only slightly from the 2.4% gain seen in the
September Tankan.
Yasunari Ueno, chief market economist at Mizuho Securities, said in
his report that corporations have refrained from forward-looking capital
investment, such as expansion of production capacity, due to the yen’s
appreciation and the dim economic outlook for both the U.S. and Japan.
From 1984 to 2009, major firms’ capital investment plans have shown
only minor changes between the September and December surveys, according
to the BOJ.
The quarterly government survey conducted on Nov. 15 and released
on Friday showed companies expect their combined capital spending to
rise 9.5% in the current fiscal year, revised up only slightly from the
8.7% increase projected in the previous survey.
In the December 2009 Tankan, major firms’ capital investment plans
showed a 13.8% y/y drop for fiscal 2009, the sharpest fall in the series
which dates to 1983.
Business investment plans by small firms for fiscal 2010 is
expected to show a 10.0% y/y decline, improving from the -15.0% forecast
in September. Small firms tend to revise up their capital investment
plans gradually as the fiscal year progresses.
In last year’s December Tankan, small firms’ capex plans showed a
record drop of -30.7% for fiscal 2009.
“The Tankan results will just confirm the Japanese economy is in a
soft patch, which would not trigger a further (policy) easing, as both
markets and the BOJ have already factored in weak Tankan results,”
JP Morgan’s Adachi said.
BOJ policymakers expect cumulative stimulative effects from a
series of unconventional monetary easing conducted since late 2008 to
increasingly impact the Japanese economy next year.
To fight deflation and guide the economy onto a sustained recovery
track, the BOJ recently adopted a “comprehensive” monetary easing policy
that includes lower interest rates, buying a range of assets from the
market, and making loans to banks that are lending to growth areas.
According to the latest monthly survey of 42 economists by the
Cabinet Office’s Economic Planning Association released on Wednesday, 27
economists, or 66% of the 41 who answered on monetary policy, forecast
that the BOJ’s next step will be a credit tightening, up from 43%, or 17
out of 40 economists, last month. In the December poll, 14 projected a
further credit easing, down from 23 in November.
skodama@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4838 **
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