Akira Maekawa, economist with UBS said, headline business sentiment will likely turn negative for the first time in five years."

Kyohei Morita, economist with Barclays Capital said, "The Tankan is likely to show severe conditions and reconfirm stagnation in the real economy."

A consensus forecast is calling for the large manufacturer's index to fall to -2 from 5, and the large manufacturer's outlook to fall to -3 from 4.

The non manufacturing index is expected to fall to 5 from 10, while outlook is expected to fall to 2 from 8.

Large all industry capex is expected to fall to 2.5% from 2.4%.

Morita pointed out that a recent preliminary Tankan done by Reuters shows a "sharp detiroration, from three months earlier for both manufacturers (to -14 in September from -2 in June) and non-manufacturers (to -10 from -2)."

Economists at Capital Economics pointed to more upbeat data, the recent business outlook survey. They said the rise in the headline manufacturer's index in this survey to -10 from -15 "is consistent with an improvement in the Tankan index to around +10. The survey was conducted on the 25th of August, and is thus timelier than some of the gloomier monthly surveys.

Economists there expect the headline index in the Tankan to come in at +2.

Strategists at Brown Brother's Harriman said the Bank of Japan's characterization of the economy as "sluggish" will be confirmed by the Tankan.

Earlier on Tuesday, Japan saw the release of gloomy economic data.

Japanese preliminary industrial output decreased 6.9% in August on an annualized basis, down from the consensus estimate of -6.0% and down from July's +2.4% growth rate.

Real household spending decreased more than expected in Japan, with the annualized rate in August coming in at -4.0% compared to the previous month's -0.5% level. The fall represents the sharpest decline seen this year.

Tuesday also saw the release of dismal unemployment data, which increased to 4.2% in August despite expectations for an increase to 4.1% from 4.0% in July

Even if the Tankan does fall, economists at Caylon said the Bank of Japan will not move to cut rates. But, the new Prime Minister Aso may be inspired to give economic stimulus, they said.

By Megan Ainscow, This email address is being protected from spam bots, you need Javascript enabled to view it

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