BoJ tankan seen likely to show subdued business mood

TOKYO: Business confidence measured by the Bank of Japan (BoJ)'s tankan survey was expected to recede slightly in three months to December and stay subdued in the coming quarter, a Reuters poll found, reflecting China's slowdown and lacklustre domestic demand.

Big firms are expected to reduce their capital spending plan for this fiscal year slightly, but it will probably remain solid - underpinned by good corporate earnings.

"The economy remained at a standstill. Although the GDP data was revised up to plus (in the third quarter), the pace of growth has not picked up. The tankan data will probably reflect that," said Tatsushi Shikano, deputy chief economist at Mitsubishi UFJ Morgan Stanley Securities.

"Economic slowdown in China and emerging nations kept a lid on business sentiment but the level of deterioration is expected to be small due to solid corporate earnings." 

The BoJ's quarterly tankan business sentiment survey was expected to show the headline index for big manufacturers' sentiment slipping by one point from three months ago to plus 11, the poll of 18 economists found.

This would be a second straight quarterly deterioration and the lowest level since the survey done in June 2013.

The sentiment index for big non-manufacturers was forecast to decline to plus 23, down two points from plus 25 three months ago - a two-decade high.

Strong spending by foreign visitors was expected to continue supporting service-sector sentiment, but slow recovery in domestic demand may have hurt its confidence slightly.

The poll found big manufacturers expect conditions to stay constant for the three months ahead, while big non-manufacturers forecast the index will worsen slightly to plus 21.

Big firms were forecast to raise their capital spending plan by 10.2% in the current fiscal year, the poll showed, but this would be down from their previous plan to increase capex by 10.9%.

Latest data showed core machinery orders unexpectedly jumped in October by the most since March 2014.

"Generally, firms' capital expenditure plan likely stayed solid," said Yuichiro Nagai, economist at Barclays Securities. "Corporate profits are high - helped by a weak yen and lower oil prices. But both foreign and domestic demand are weak and sales have not picked up as much as profits. So sales growth is needed for them to increase capital investment within Japan." 

The BoJ will publish its tankan survey at 2350 GMT Dec 13.

The Reuters Tankan, which closely tracks the BoJ's tankan survey, found this week that Japanese manufacturers' confidence held steady from three months ago, but the service sector index fell. - Reuters

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