Japanese companies are slightly less optimistic about business conditions than they were three months ago amid growing concerns about the outlook for the U.S. and global economies, a Bank of Japan survey showed on Monday.
But the closely watched March tankan survey did little to change the widespread view that the central bank will be slow in raising interest rates, with many traders expecting the next rate hike to come some time after upper house elections in July.
The yen was weaker against the dollar after the data, moving out to around 118.00 yen from around 117.75 just before the tankan's release, while the Nikkei 225 Average was trading higher in the morning session.
The headline sentiment index for big manufacturers was plus 23, meaning those firms who think business conditions are favorable outnumbered those who think they are negative by 23 percentage points. This was down from plus 25 in December and slightly below economists'
forecasts of plus 24.
The diffusion index (DI) for June was seen at plus 20, showing big manufacturers, a key driver of Japan's economy, are less upbeat about conditions over the next three months.
Economists said firms have seemingly become more wary about a likely slowdown in the U.S. economy -- Japan's biggest export destination, a global stock market upheaval at the end of February, and a slight rise in the yen.
"The tankan was generally within expectations. The DI is already at a high level, so unless the big manufacturers' DI fell below plus 20 it won't have much impact on the markets," said Makoto Yamashita, chief JGB strategist at Lehman Brothers.
Overall, the tankan underscored that Japan's corporate sector remains healthy, adding to Friday's data showing firm household spending and smaller-than-expected declines in industrial output.
Market traders watched the data for clues on the timing of the BOJ's next interest rate hike, but regardless of the outcome, many had already expected the central bank to stay put when it holds the next policy board meeting on April 9-10.
Another focus of the survey was whether Japanese firms will keep spending on investment in the new business year after having spent so much money on capital expenditure in recent years.
The tankan, meaning "short-term economic outlook", showed big firms expect their capital spending to rise 2.9% in the new financial year started on April 1, compared with the market's median forecast for a 1.7% rise and an 11.9% growth in the last business year.
But analysts say firms traditionally take a conservative view of capital spending plans ahead of the start of a business year and tend to upgrade later in the year.
The BOJ conducted regular revisions to sample enterprises in the tankan in early March and some of the December tankan figures have been revised. The survey covered 10,958 companies, of which 2,479 were categorized as large.
The survey was conducted from Feb. 23 to March 30.
The diffusion index is calculated by subtracting the percentage of companies that consider conditions to be unfavorable from those that consider them to be favorable.