JP: Tankan

Thu Mar 31 18:50:00 CDT 2016

Consensus Actual Previous
Large Mfrs 9 6 12
Small Mfrs -2 -4 0
CAPEX -4.8 7.8

First quarter Tankan survey was weaker than expected across the board. The large manufacturers reading was 6, down from 12 in the fourth quarter and below the consensus of 9. This was the lowest reading since a 4 in the June quarter of 2013. Small manufacturers also came in below consensus with a reading of minus 4.

The large nonmanufacturing index reading eased to 22, below December's 25. Small nonmanufacturing index was 4, down slightly from December. According to the BoJ, all sectors were hit by the emerging economies' slowdown with major exporters the hardest hit.

The survey covers a period in which the Bank of Japan announced it would adopt negative interest rates in an effort to spur inflation and economic growth. While further monetary easing is typically expected to lead to a weaker currency, the opposite happened, with the yen rising to its strongest level since October 2014.

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.