JAPANESE business confidence and capital expenditure plans held steady from three months ago, a closely-watched central bank survey showed, a sign companies weren’t significantly worried about escalating trade frictions and global growth concerns.

But firms expect conditions to worsen three months ahead, the Bank of Japan’s “tankan” quarterly survey for December showed Friday, suggesting that the Sino-U.S. trade war and slowing Chinese demand could weigh on next year’s spending plans.

Separate data Friday showed Japanese manufacturing activity expanded in December, though export orders contracted at the fastest pace in more than two years in a sign of weakening overseas demand.

The mixed batch of data underscores the challenges the Bank of Japan (BOJ) faces as heightened risks keep it from exiting its radical stimulus while a lack of policy ammunition makes it difficult to battle headwinds with additional easing.

“The solid tankan results probably diminished any speculation the BOJ could ease further amid slowing global growth and adjustments in stock prices,” said Masaki Kuwahara, senior economist at Nomura Securities.

“The BOJ is in no position to tighten any time soon either. We expect monetary policy to be on hold at least until the end of fiscal 2020.”

The tankan’s headline gauge of big manufacturers’ sentiment stood at plus 19, unchanged from three months ago and beating a median market forecast of plus 17, the tankan survey showed.

The index for non-manufacturers rose to plus 24 from plus 22 in the September survey, exceeding a market forecast of plus 21 and improving for the first time in two quarters.

Both manufacturers and non-manufacturers were more pessimistic about the business outlook three months ahead, a sign they are only just starting to feel the pinch from global trade tensions.

Still, big firms plan to raise capital spending by 14.3 percent in the business year to March 2019, revised up from the previous survey and beating market forecasts of a 12.7-percent increase.

“Capital expenditure turned out solid probably because firms see the need to invest in cutting-edge technology to stay competitive and deal with labour shortages,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“But you can’t rule out the possibility of a downward revision in spending plans, depending on the outlook for global trade and Japan’s exports,” he said.

The survey will be among the various data points the BOJ will scrutinize at its two-day rate review this week, when it is widely expected to keep monetary policy steady.

Japan’s economy shrank an annualized 2.5 percent in the third quarter, suffering the worst slump in over four years, as a string of natural disasters cooled consumer sentiment and disrupted factory output.

(SD-Agencies)