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2 Jul 2014
Japan: Temporary decline in business confidence - Nomura
FXStreet (Bali) - After the temporary decline seen in Japanese business confidence on Tuesday, Yujiro Goto, FX Strategist at Nomura, notes that firms are still cautious on the economic outlook after the tax hike.
Key Quotes
"The June BOJ Tankan survey showed business confidence deteriorated in Q2, owing to the sales tax hike, as expected (see “BOJ Tankan June 2014 – Improving corporate outlook”, 1 July 2014). The magnitude of the decline in the large manufacturing sector was bigger than expected, as the DI declined to +12 from +17 (consensus: +15). The survey forecast an improvement in business conditions, but the forecast DI is +15, still below the level in Q1. Even though a gradual recovery in business conditions is widely expected, firms are still cautious on the economic outlook after the tax hike."
"At the same time, firms’ view on capacity utilization and employment, which influences the BOJ’s view on economic slack, remains strong into Q3. The actual production capacity DI for all enterprises/industries deteriorated to +1 from 0, suggesting slightly more companies see excessive capacity than insufficient capacity in Q2. However, the production capacity forecast DI was -2, suggesting companies expect production capacity to be insufficient soon, on average. In fact the capex forecast for FY2014 showed a strong improvement from the previous survey. The actual employment conditions DI for all enterprises/industries also worsened to -10 from -12, but the forecast DI is -14, the lowest level since 1992."
"BOJ Governor Kuroda stated that the GDP gap seems to have narrowed to almost zero percent, the long-term average, in his latest speech on 23 June. Firms‟ view on production capacity and employment should not change his positive judgement on economic slack. Inflation expectations among firms, which is scheduled to be released tomorrow by the BOJ, is worth monitoring, but Governor Kuroda's view on the inflation outlook is likely to remain largely unchanged after the Tankan survey. A BOJ easing is still unlikely in the near future."
"Smaller production capacity will likely lead to strong FDI outflows and domestic capex . Better employment conditions should also boost household risk sentiment, encouraging them to invest in foreign assets. Japanese foreign investment is expected to remain strong beyond the sales tax hike."
Key Quotes
"The June BOJ Tankan survey showed business confidence deteriorated in Q2, owing to the sales tax hike, as expected (see “BOJ Tankan June 2014 – Improving corporate outlook”, 1 July 2014). The magnitude of the decline in the large manufacturing sector was bigger than expected, as the DI declined to +12 from +17 (consensus: +15). The survey forecast an improvement in business conditions, but the forecast DI is +15, still below the level in Q1. Even though a gradual recovery in business conditions is widely expected, firms are still cautious on the economic outlook after the tax hike."
"At the same time, firms’ view on capacity utilization and employment, which influences the BOJ’s view on economic slack, remains strong into Q3. The actual production capacity DI for all enterprises/industries deteriorated to +1 from 0, suggesting slightly more companies see excessive capacity than insufficient capacity in Q2. However, the production capacity forecast DI was -2, suggesting companies expect production capacity to be insufficient soon, on average. In fact the capex forecast for FY2014 showed a strong improvement from the previous survey. The actual employment conditions DI for all enterprises/industries also worsened to -10 from -12, but the forecast DI is -14, the lowest level since 1992."
"BOJ Governor Kuroda stated that the GDP gap seems to have narrowed to almost zero percent, the long-term average, in his latest speech on 23 June. Firms‟ view on production capacity and employment should not change his positive judgement on economic slack. Inflation expectations among firms, which is scheduled to be released tomorrow by the BOJ, is worth monitoring, but Governor Kuroda's view on the inflation outlook is likely to remain largely unchanged after the Tankan survey. A BOJ easing is still unlikely in the near future."
"Smaller production capacity will likely lead to strong FDI outflows and domestic capex . Better employment conditions should also boost household risk sentiment, encouraging them to invest in foreign assets. Japanese foreign investment is expected to remain strong beyond the sales tax hike."