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External demand weakness has further to run

Firms expect the recent weakness in external demand to last another quarter at least, according to the BoJ’s latest Tankan survey. That should drag on business investment as well and cause the economy to contract slightly in Q2. Meanwhile, there is no sign that banking turmoil abroad has had any impact on domestic financial conditions. Bank lending attitudes have remained largely unchanged and firms have not encountered additional difficulty issuing commercial paper. 

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