MNI BRIEF: BOJ Tankan To Show Weaker Sentiment

The Bank of Japan’s June Tankan survey will likely show a decline in business sentiment from three months ago, though capital investment plans by major firms for the current fiscal year are expected to be revised up in line with typical seasonal trends, according to economists.

U.S. tariffs, elevated costs, and persistent uncertainty is weighing on sentiment, particularly among manufacturers. 

Economists expect the diffusion index (DI) for large manufacturers, the Tankan’s benchmark measure, to fall to +9 in June from +12 in March, while the DI for major non-manufacturers is forecast at +34, down from +35.

The DI for small manufacturers is projected at 0, down from +2, while that for small non-manufacturers is seen at +15, down from +16.

Capital investment plans by major firms in FY2025 are expected to show an 8.2% y/y increase, revised up from the +3.1% projection in March. However, capex plans by smaller firms are forecast to fall 7.9%, an improvement from the previous -10.0%.

While the Tankan will show solid capex intentions, economists noted implementation may be uncertain due to softening demand and ongoing risks.

BOJ officials will also closely watch whether firms expect sustained high sales and input prices, a key indicator of corporate price-setting behaviour crucial to achieving the 2% inflation target.

The BOJ will release the Tankan, which covers responses from early May through June 30, at 0850 JST on July 1 (2350 GMT, June 30).