Japan's Tankan survey for the three months ending September showed sentiment in the manufacturing sector remains weak, with ongoing strength in the Japanese currency continuing to have a negative impact on conditions. Conditions in the non-manufacturing sector were mixed but generally stronger than in the manufacturing sector.
The index for large manufacturers was steady at plus 6 for the third consecutive quarter, falling short of the consensus forecast for a small increase to plus 7. The index for medium-sized firms rose from plus 1 to plus 3. The index for small manufacturers was better than expected albeit still in negative territory, increasing from minus 5 in the previous quarter to minus 3, compared with the consensus forecast of minus 5.
In the non-manufacturing sector, the business conditions index fell slightly from plus 19 to plus 18 for large firms, rose from plus 14 to plus 15 for medium-seized firms, and rose from zero to plus 1 for small firms.
Large firms across both sectors expect to increase capital expenditure in fiscal year 2016 (ending March 2017) by 6.3 percent, slightly higher than the 6.2 percent reported in the previous three months, but below the consensus forecast of 6.7 percent.
The Tankan survey, which is conducted quarterly by the Bank of Japan, is considered the most complete reading of Japan's 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.
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