MNI Survey:BOJ Tankan Major Mfg Index Seen Rising to +3 Vs -9

Author: Market News International | Category: News

— 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 rise in two quarters in September, according to the median
forecast of economists surveyed by Market News International.

The BOJ will release the outcome of its September Tankan survey at
0850 JST on Monday, Oct. 3 (2350 GMT Sunday).

The headline diffusion index (DI) is forecast to rise to +3 in
September from -9 in the previous survey in June. The forecast level
for the September survey would be the highest since +6 marked in March.

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.

Many economists said the quicker-than-expected recovery in
industrial output seems to be helping improve sentiment among major
manufacturers.

Industrial production, which has a major impact on the
manufacturers’ DI, rose for a fourth straight month in July due to the
continued recovery in production facilities and supply chains from the
devastation caused by the March earthquake and tsunami.

The government’s survey of firms showed that output is forecast to
have risen 2.8% m/m in August but to have fallen 2.4% in September.
Still, many economists believe that production level will improve to
93.3 in September (against 100.0 for the 2005 base year) from 92.6 in
June.

Looking ahead, economists said the pace of improvement in the major
manufacturer DI will slow in December on concerns about slower overseas
growth and the persistently strong yen exchange rate.

Economists expect the major manufacturer DI to rise slightly
further to +4 in December from the expected +3 in September.

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.

Economists expect the major non-manufacturers’ index to rise to +2
in September from -5 in June, which would be the highest level since +3
marked in March.

Wholesalers and delivery firms are expected to have led the
expected improvement in the non-manufacturer DI, as they would tend to
be positively influenced by the recovery in manufacturing business
activity, economists said.

In addition, consumer sentiment recovered steadily through July
from the March disaster, which has supported some increase in
consumption and thus the service sector, they said.

In August, fears that the yen’s rise would hurt corporate profits
and so lead to jobs cut led a flat consumer confidence reading. Still,
the overall improvement in consumer confidence since March should be a
positive factor for the September Tankan survey, economists said.

The DI for small manufacturers is seen improving to -14 in
September from -21 in June. The expected September level would be the
highest level since -10 in March.

The sentiment index for small non-manufacturers is expected to rise
to -21 in September from -26 in June, which would be the highest since
-19 seen in March.

The September Tankan is also expected to show that capital
investment plans by major firms in fiscal 2011 will rise 4.4% on year,
up slightly from a 4.2% rise projected in the June Tankan.

Stronger capex plans were already signalled by the Japanese
government quarterly survey conducted on Aug. 15 and released on Sept.
12, which showed companies expect their combined capital spending to
rise 5.4% on year in fiscal 2011, improving from +4.9% projected three
months earlier.

In the September Tankan, capex plans by small firms in fiscal 2011
are expected to show a 20.0% y/y decline, improving from -24.9% seen in
the June Tankan.

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

The BOJ is expected to have conducted its latest Tankan survey up
to Sept. 30, with 70-80% of surveyed firms responding by the BOJ’s
suggested date of Sept. 12.

skodama@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4838 **

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