Ruixue Point Evaluation: Bank of Japan's Short-term Outlook Survey - Under the Shadow of Trump's Tariffs, Business Confidence Remains Resilient.

Sumitomo released a research report reviewing the latest short-term survey conducted by the Bank of Japan from May 28 to June 30. The survey results indicate that despite the additional tariffs imposed by US President Trump, Japanese business confidence overall remains resilient, and investment plans are in line with seasonal trends. Bank of Japan Governor Kuroda emphasized in a recent speech that corporate capital investment plans will be a focus of attention. The Bank of Japan has hinted that the timing of the next interest rate hike will depend on its assessment of the impact of tariff policies on the real economy. Sumitomo believes that while this stance is unlikely to be influenced by current data, these data may at least bring some confidence to Kuroda and his team. Sumitomo continues to closely monitor changes in inflation expectations. The latest survey shows that inflation expectations have not changed significantly compared to the March survey. This sign suggests that Trump's tariffs have not yet made Japanese companies more conservative in their pricing positions, which may also help the Bank of Japan reduce concerns about potential downward price risks. Specifically in terms of business confidence, the confidence index of large manufacturing companies unexpectedly improved compared to the March survey results, while the confidence index of large non-manufacturing companies and small businesses slightly decreased. Sumitomo believes that the survey results indicate that despite the impact of Trump's tariff policy, business confidence remains relatively stable. In terms of fixed investment plans, large companies have raised their capital expenditure forecast for the fiscal year 2025 to an annual increase of 11.5%, while small companies have raised it to -5.6%. These adjustment levels are consistent with trends in previous years, indicating limited tariff impact. In terms of business performance, sales for all companies in fiscal year 2025 are expected to increase by 1.4%, slightly higher than the 0.8% increase in the March survey; however, profit forecasts have deteriorated from -1.4% to -5.7%, but still align with trends from previous years. In terms of employment, labor shortages remain severe. The employment condition index remains in negative territory at -35, rising only 2 points from March. Labor market tightness is likely to continue to bring structural upward pressure on wages. In terms of business price expectations, companies currently expect overall prices to rise by 2.4% in the next year, 2.4% in the next three years, and 2.3% in the next five years, with little change compared to the March survey results. At the same time, companies expect output prices to rise by 2.9% in the next year, 4.3% in the next three years, and 5.1% in the next five years, with little change compared to the March survey results. This sign indicates that Trump's tariffs have not yet made Japanese companies more conservative in their pricing positions, which may help the Bank of Japan alleviate concerns about potential downward price risks.