BOJ Tankan to show business mood mixed amid strong yen

September 23, 2016 3:43 AM EDT

Men walk toward the Bank of Japan (BOJ) building in Tokyo, Japan, September 21, 2016. REUTERS/Toru Hanai

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By Kaori Kaneko

TOKYO (Reuters) - Japanese manufacturers' mood improved for the first time in five quarters while service sector confidence worsened to the lowest since 2014, a Reuters poll showed, as the effects of a strong yen filtered through the economy.

The Bank of Japan's quarterly tankan business sentiment survey will likely show the headline index for big manufacturers' sentiment improving by 1 point to plus 7 points in September from plus 6 points three months ago, the poll of 16 economists showed.

It would be the first time the index improves since the June survey in 2015.

The poll found the sentiment index for big non-manufacturers worsened slightly to plus 18 from plus 19 three months ago. It would be the third straight quarterly deterioration and the lowest since the December 2014 survey when the index stood at plus 16.

"A significant improvement in sentiment among big manufacturers is unlikely because of the adverse impact of a strong yen - a real body blow," said Tsuyoshi Ueno, senior economist at NLI Research Institute.

"Although there will probably be a small improvement in sentiment, there is a lack of momentum."

He also said a slight improvement in sentiment among big manufacturers was likely led by the auto sector, which recovered its production losses following earthquakes in southern Japan and firms' receding concerns about fallout from Brexit.

"Public works probably supported non-manufacturers' sentiment but a slowdown in spending by foreign tourists and bad weather had a negative impact."

Sentiment of big manufacturers is expected to improve slightly in the next three months supported by the government's economic stimulus steps, while that of non-big manufacturers will probably stay the same, according to the poll.

Big firms are expected to raise their capital spending plans by 6.8 percent for this fiscal year to March, compared with 6.2 percent planned previously, the poll found.

"Some big manufacturers could delay their capex plan due to worries about a strong yen and corporate profits," said Takayuki Miyajima, senior economist at Mizuho Research Institute.

"On the other hand, non-manufactures likely develop their capex plan on domestic infrastructure building and inbound demand. Thus, overall firms' capex plans will probably show a solid tone."

The BOJ will announce the tankan quarterly survey at 8:50 a.m. on Oct. 3 (2350 GMT on Oct 2)


The poll also found core consumer prices (CPI), which includes oil products but excludes volatile fresh food prices, fell 0.4 percent in August from a year earlier.

It would be the sixth straight monthly fall but the pace of decline likely slowed from a 0.5 percent drop in July.

Analysts say price falls in energy-related items narrowed but a strong yen weighed on price gains in food and daily necessities.

Industrial production is expected to have risen 0.5 percent in August from the previous month helped stronger exports to Asian nations, according to the poll, following a slip of 0.4 percent in July.

The poll found the jobless rate to be steady at 3.0 percent in August and the jobs-to-applicants stayed at 1.37 in August - the same level in July and June and the highest since August 1991 when the ratio was at 1.40. And household spending fell an annual 2.5 percent in August, it showed.

Japan's internal affairs ministry will announce August core CPI, household spending and labor market data at 8:30 a.m. on Sept. 30 (2330 GMT Sept. 29) and the trade ministry will release industrial output at 8:50 a.m. on the same day.

(Editing by Jacqueline Wong)

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