JP: Tankan

Tue Mar 31 18:50:00 CDT 2015

Consensus Actual Previous
Large Mfrs 15 12 12
Small Mfrs 4 1 1
CAPEX -0.7 -5.0 5.5

The Bank of Japan's closely-watched Tankan survey indicated business spending plans are at their weakest in two years, despite increased monetary stimulus last October and some recent progress on structural reforms. Expectations were that the first quarter Tankan would show improvement across the board but capital spending forecasts were anticipated to be bleak.

In reality, the report disappointed. First quarter 2015 Tankan, a survey of more than 10,500 companies indicates continued weakness going into the new fiscal year beginning April 1. The quarterly survey gives a strong sense of business conditions across the manufacturing and services sectors, big and small, as Japan's new fiscal year begins. Large manufacturers' index disappointed and was unchanged with a reading of 12 from the fourth quarter 2014. Expectations were for the index to increase to 15. Small manufacturers' index reading disappointed as well. It was 1, down from the fourth quarter's revised reading of 4.

Survey participants see weaker overseas demand while domestic demand is flat. Auto, electronics firms are cautious when it comes to the weak yen effects. Expectations were for an increase to all industries capex. Expectations were for a modest decline of 0.7 percent. The actual was a decline of 5.0 percent on the year.

This survey, which is conducted quarterly by the Bank of Japan, is considered the most complete reading of Japanese economic performance. The Tankan surveys individual components of the economy such as large and small manufacturing and nonmanufacturing enterprises. A key component of the survey deals with capital expenditures (CAPEX) going forward.

The Bank of Japan's Tankan survey is considered one of the most important indicators of the economy's health and helps the Bank of Japan determine monetary policy. It is widely used by investors to determine future investments in Japan. Firms are asked questions that cover a wide range of topics including the future direction of capital expenditure and pricing as well as the corporate outlook towards employment and the overall economy.

The data are broken down by large, medium and small manufacturers as well as the non-manufacturing sectors. A key number to watch is the all industries capital expenditure or CAPEX measures capital expenditure by all Japanese industries except the financial industry. The large manufacturers' index reflects the large international companies while the small manufacturers' index is reflects the domestic economy.