Japan's Tankan survey for the three months to March shows business sentiment in the manufacturing sector has improved compared with late 2016. Business sentiment in the non-manufacturing sector also strengthened from the previous quarter.
Survey respondents reported improved conditions across the manufacturing sector. The business conditions index rose from 10 in the three months to December to 12 in the three months to March for large manufacturers, well above the level seen over most of 2016 but falling short of the consensus forecast for an increase to 14. The equivalent index rose from 6 to 11 for medium-sized manufacturers and from 1 to 5 for small manufacturers.
For non-manufacturers, the business condition index rose from 18 to 20 for large firms, rose from 16 to 17 for medium-sized firms, and rose from 2 to 4 for small firms.
For all industries, large firms have revised down their forecast capital expenditures in the fiscal year ending in March 2017 to an increase of 1.4 percent year-on-year, down from their estimate of 5.5 percent made last quarter. large firms also forecast only a modest increase year-on-year increase of 0.6 percent for the fiscal year ending March 2018. Large manufacturers forecast capex to increase 6.2 percent in the fiscal year just ended and by 5.3 percent in the fiscal year just started, while large non-manufacturing firms forecast decline s in both years.
Medium-sized firms across both sectors are forecasting year-on-year declines for the last fiscal year but strong rebounds this fiscal year. Small manufacturers also forecast declines in both fiscal years, but small non-manufacturing firms are forecasting an increase in the fiscal year just ended followed by a decline in the fiscal year just started. These forecasts result in forecast for aggregate capex across all form's to rise by 0.4 percent in the fiscal year ended March 2017, down from the previous forecast of 1.8 percent, and for a decline of 1.3 percent for the fiscal year ending March 2018.
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.