BOJ Tankan Posts Small Decline On Mixed Sentiment

 

The study also endorses the downtrend is coming to a conclusion. 'Developments in the past week -- such as the resumption of talks between the U.S. and China and the U.S. and North Korea -- will help stabilize business sentiment,' said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

 

Showing the easing of geopolitical tensions, the safe-haven yen slipped towards the dollar on Monday morning, providing 'a tailwind' to the BOJ's campaign to support the economy, Kumano added.

 

The yen is buying and selling in the 108 range against the dollar in early Monday trading, versus the 107 range on Friday.

 

The closely watched index of sentiment among large manufacturers registered a plus 7 in the April-June period, as opposed to plus 12 in the previous survey. Economists had expected a reading of 9, as mentioned in a poll conducted by Nikkei group company QUICK.

 

Falls were most pronounced in industries exposed to China's on-going economic slowdown, such as production machinery and automobiles. This is the second consecutive quarterly decline, with the figure now at its lowest level in nearly three years.

 

The index processes the percentage of companies that say business conditions are encouraging minus those that say the opposite. It is viewed as a warning of Japan's economic health and of any potential monetary policy shifts.

 

Big manufacturers expect the diffusion index to stay unchanged at plus 7 in the next three months, the survey showed.

 

The central bank kept monetary policy unchanged in a meeting on June 20, but Gov. Haruhiko Kuroda said extra stimulus would be a plan if prices stall and fail to meet the central bank's 2% inflation target.

 

The index continues to be on a downward trend since peaking at 25 in the December 2017 survey, in tandem with slowdown in the Chinese economy and the increasing Sino-U. S. trade dispute.

 

At the same time, the diffusion index for large nonmanufacturers improved to 23, versus 21 for the earlier three-month period.

 

Large companies are looking to increase capital investment by 7.4% over the fiscal year starting April. In the preceding survey, they estimated a growth of just 1.2%.

 

Big manufacturers are in search of a pretax profit decline of 8.1% in the current fiscal year versus a fall of 1.3% as forecast in the previous survey. They believe the dollar-yen rate to average 109.35 versus 108.87 in the previous survey.

 

The BOJ has kept monetary policy unchanged since it initiated driving down long-term interest rates to around zero in September 2016. Observers now see the central bank as having run out of choices as its ultra-easy policy has started hurting financial markets and banks.

 

But Kumano believes that the BOJ would likely do something if the yen were to strengthen much beyond the projected rate and touch 105 or higher.

 

Source: Tronserve