June 23, 2017 / 7:36 AM / 2 months ago

BOJ June Tankan set to show improved business confidence; CPI seen rising

A man looks at a mobile phone in front of the Bank of Japan building in Tokyo, Japan June 16, 2017.Toru Hanai

TOKYO (Reuters) - Japanese big manufacturers' confidence is expected to have improved for a third straight quarter in June to match the peak seen two years ago, but may recede in the coming quarter on uncertainty around conditions overseas.

A Reuters poll of 16 economists found the Bank of Japan's quarterly tankan business sentiment survey is expected to show the headline index for big manufacturers' sentiment rising 3 points to plus 15 in June from three months ago.

That would be the third straight quarterly rises, matching the level seen in the June 2015 survey and highest since March 2014 when the index stood at plus 17.

"We expect big manufacturers' mood is recovering due to a favorable export environment, stable currency and factory output recovering on a pickup in consumer spending," said Tsuyoshi Ueno, senior economist at NLI Research Institute.

"As for the outlook, in addition to uncertainty over the Trump administration, geopolitical issues such as Brexit and the North Korea situation will weigh on business sentiment."

The poll found the big non-manufacturers' sentiment index would rise 3 points to plus 23 in June, which would be the highest level since December 2015 when the index was at plus 25.

Business confidence among big manufacturers was seen likely worsen slightly to plus 14 in the coming quarter, while non-manufacturers' morale is seen deteriorating to plus 20, the poll found.

The survey found that big firms will plan to raise their capital spending in this fiscal year by 7.4 percent, upgrading from 0.6 percent in the March survey.

The BOJ will announce the outcome of its quarterly tankan survey at 8:50 a.m. on July 3 (2350 GMT on July 2).

The Reuters monthly Tankan, which tracks the BOJ's survey, showed confidence among Japanese manufacturers bounced in June to match a decade-high level recorded in April and is expected to rise for several months, providing more evidence of economic recovery.

The poll also found the core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, was expected to rise 0.4 percent in May, up for a fifth straight month, driven by energy costs.

Factory output was thought likely to fall 3.2 percent in May from the previous month, but analysts believe that such a drop would be in reaction to a 4.0 percent gain in April.

Retail sales were forecast to rise an annual 2.6 percent in May, up for a seventh straight month. The poll showed household spending likely slipped 0.6 percent from a year earlier, down for 15 straight months, although the rate of decline slowed from a 1.4 percent drop in April.

"Consumer spending on durable goods such as autos and electrical appliances is on the rise but wage recovery remains sluggish, so the pace of recovery in consumer spending will stay slow," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

The jobs-to-applicants ratio was seen steady at 1.48 in May, staying at the highest level since February 1974 when the ratio was at 1.53. And the unemployment rate likely stood at 2.8 percent for the month, unchanged form the previous month.

The internal affairs ministry will release core CPI, household spending and jobs-related data at 8:30 a.m. on Friday (23:30 GMT on Thursday).

The trade ministry will announce retail sales at 8:50 a.m. on Thursday and industrial production on Friday.

Japan's government on Thursday raised its overall view of the economy for the first time in six months, reflecting a gradual pick-up in private consumption and underscoring its confidence that an export-led recovery is broadening.

Reporting by Kaori Kaneko; Editing by Eric Meijer

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