MNI POLICY: June Tankan To Offer BOJ View On Rate Hike Path

Bank of Japan officials will closely watch the upcoming June Tankan survey, due July 1, for signs of resilience in non-manufacturers' sentiment and upward revisions to major firms’ capital investment plans, which would support its baseline view for a gradual rate-hike path, MNI understands. 

The survey, which typically shows a steady capex upward revision in June, will offer a key read on how U.S. trade policy is impacting corporate sentiment. A notable weakening in non-manufacturing sentiment or lower capex plans could cast doubt on the Bank’s outlook and delay further tightening.

Officials expect manufacturer sentiment to worsen due to tariffs, but believe non-manufacturers remain relatively insulated – though there is concern that weaker manufacturing profits could eventually hit household income and consumer spending.

Despite near-term caution, structural labour shortages are expected to sustain medium- to long-term investment in efficiency and digitalisation. 

CAPEX CONCERNS

Tariffs will put downward pressure on corporate profits, and officials are focused on whether firms maintain earnings through sales volume or price increases. Profit gains driven by higher sales volumes tend to lift real growth expectations and prompt swift capex, while those driven by price factors, such as improved terms of trade, do not immediately lead to investment.

Officials also expect corporate inflation to remain firm, as businesses continue to raise retail prices steadily despite uncertainties from U.S. trade policy, supporting the relationship between wages and prices. 

The BOJ is also monitoring insights from quarterly branch manager meetings in early July to examine the impact of trade policy on regional businesses.

MNI reported in May that a 25 basis point hike to the 0.5% policy rate in October was possible should trade tensions ease and the U.S. avoid a recession. (See MNI POLICY: BOJ Weighs Trade Impacts, Oct Hike Potential)