(Corrects typographical error in paragraph 8)

TOKYO (Reuters) – Business confidence among Japan’s large manufacturers likely slipped in the third quarter as the highly contagious COVID-19 Delta variant hit corporate and consumer activity, the central bank’s closely watched Tankan survey is expected to show.

Analysts said that August’s core consumer prices are expected to be flat compared with the previous year due to rising fuel costs and shorter overnight stays.

A poll of 17 economists revealed that the Bank of Japan’s quarterly tankan business sentiment survey showed that the main index of large manufacturers’ sentiment declined to 13 points from 14.

Takeshi Minami of Norinchukin Research Institute, chief economist, said, “Durable goods have been strong up until now, compensating for a slumping in service consumption.”

He said that output cuts made by carmakers due to a shortage of chips worldwide and problems procuring parts from Southeast Asia’s explosive COVID-19 Delta variety in the summer have impacted activity.

According to the poll, moods among large non-manufacturers were also expected to drop slightly but not slip into net pessimism. They came in flat at +1 in June.

The forecasts were in line with a string of recent data https://www.reuters.com/world/asia-pacific/japan-manufacturers-mood-falls-5-month-low-sept-reuters-tankan-2021-09-14 that shows firms are facing renewed headwinds from the pandemic, which remain especially painful for service-sector firms.

Data this week showed the country’s exports extended https://www.reuters.com/world/asia-pacific/japans-exports-extend-double-digit-gains-6th-straight-month-2021-09-16 double-digit gains in August, although the pace of growth weakened as COVID-19 hit key Asian supply chains and slowed factory output.

Japan’s economic growth is seen slowing https://www.reuters.com/world/asia-pacific/japans-q3-growth-forecast-more-than-halved-covid-19-impact-2021-09-14 in the current quarter from April-June due in part to those disruptions even as the country’s vaccination rates improve and daily COVID-19 infections appear to have peaked.

According to the poll, the optimism of big companies was forecast to increase slightly to 15, and the outlook index for large non-manufacturers was projected to climb to plus 5.

As the outlook improves, big firms are likely to increase their capital expenditure plans by 9.1% in the current fiscal year.

8.50 AM on Oct. 1: The BOJ will publish the results of its tankan quarterly survey.

The central bank is set https://www.reuters.com/world/china/boj-maintain-stimulus-supply-disruption-darkens-export-outlook-2021-09-17 to maintain its massive stimulus at its Sept. 21-22 policy meeting, as supply bottlenecks caused by factory shutdowns in Asia and lacklustre consumption weigh on the economy.

The poll revealed that nationwide core consumer prices (which exclude fresh foods but includes oil products) were flat in August compared to a year ago. Separate data will be released on September 24.

(Corrects typographical error in paragraph 8)