BoJ Tankan Survey: uplift in business sentiment following slump

Ahead of the Bank of Japan (BoJ) Tankan survey results released on Monday 2 July, Katsunori Kitakura, lead Strategist at SuMi TRUST, predicts positive results bolstered by a recovery in both manufacturing and non-manufacturing industries:

“We forecast the Bank of Japan’s Business Sentiment Diffusion Index (DI) for large enterprises to rebound after a poor March figure. This improvement will be driven by a recovery in both the manufacturing and non-manufacturing industries. For manufacturing, exports of general-purpose machinery and electrical machinery to the US and China were strong and had recovered from Q1 2018.

“In the non-manufacturing industry, the Indices of Tertiary Industry Activity show that the information and communications, retail trade, and living and amusement-related services industries performed well and that demand had recovered from Q1 2018. Here again, sentiment has recovered. Among the sectors driving this uplift are living and amusement-related services, including not only entertainment, which has enjoyed an upsurge in demand as we enter the sports season, but also the hotel business which has thrived due to a rise in domestic and inbound demand.

“Despite Japan’s Q1 2018 GDP growth being negative, the first time in nine quarters, we maintain our main scenario of a global economic recovery together with an economic expansion in Japan, with FY 2018 real GDP to rise by +0.9%, and +0.7% for FY 2019. However, risk factors – such as trade frictions between the US and China, and the rise in crude oil prices – remain. Escalation of the Sino-US trade dispute, and/or a sharp rise in the price of oil could decelerate global economic growth and buckle the Japanese economy.”