JP: Tankan

Wed Sep 30 18:50:00 CDT 2015

Consensus Actual Previous
Large Mfrs 13 12 15
Small Mfrs 0 0
CAPEX 6.4 3.4

Business conditions in Japan worsened during the third quarter although services companies were in better shape compared to their manufacturing counterparts. Third quarter Tankan readings indicate that major manufacturers CAPEX was hit by the Chinese slowdown while nonmanufacturing benefited from weak oil prices and is at its highest level since November 1991. Spending by tourists is supported major nonmanufacturing firms. A Bank of Japan official noted that the domestic supply and demand balance is improving but the overseas balance is looser on uncertainty.

The large manufacturing index slipped to a reading of plus 12 from plus 15 in the June quarter and was slightly below the consensus estimate of plus 13. Small manufacturing was unchanged at zero. Large nonmanufacturing index reading was plus 25, up from June's plus 23 and higher than the median forecast of plus 20. Fiscal year 2015 overall CAPEX forecast indicates an overall increase of 6.4 percent with big firms' plans up 19.0 percent while small firm plans down 6.1 percent.

The Tankan is a massive, quarterly survey of business sentiment with a near-100 percent response rate, making it one of the best barometers of economic health in Japan.

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.