MNI: BOJ Tankan: Key Sentiment Rises, Solid Capex Plans

Japanese business sentiment improved slightly for the first time in two quarters, despite elevated uncertainty, while sentiment among major non-manufacturers posted its first decline since December 2024, the Bank of Japan’s June Tankan survey showed Tuesday.

The diffusion index for major manufacturers rose to +13 in June from +12 in March, the highest since December 2024, though it is expected to slip back to +12 in the September survey. Sentiment was supported by solid corporate profits as many firms successfully passed on higher costs to retail prices, but concerns remain over U.S. tariffs and rising labour costs, a BOJ official said.

Sentiment among major non-manufacturers fell to +34 in June from +35, also marking the lowest reading since December 2024, with a further drop to +27 projected for September.

Among smaller firms, sentiment slipped across the board. The index for small manufacturers dropped to +1 from +2, the first decline in five quarters, and is forecast to turn negative at -2 by September. The index for small non-manufacturers declined to +15 from +16, and is seen falling to +9.

Despite the mixed sentiment results, capital investment plans remain solid. Major firms plan to increase capex by 11.5% in fiscal 2024, well above the historical average. While small firms plan a 5.6% drop in investment, this is also above average and such plans are often revised up later in the year.

The results support the BOJ’s view that the virtuous cycle of income and spending continues. However, officials are cautious about reading too much into the positive headline figures, as many firms have not yet factored in the full impact of U.S. trade policy. The BOJ will place greater weight on feedback from regional branch managers at its July 10 meeting to assess business conditions better. (See MNI POLICY: June Tankan To Offer BOJ View On Rate Hike Path)