JP: Tankan

Sun Jul 02 18:50:00 CDT 2017

Consensus Actual Previous
Large Mfrs 14 17 12
Small Mfrs 6 7 5
CAPEX 2.9 -1.3

Japan's Tankan survey for the three months to June shows business sentiment in the manufacturing sector has improved compared with the three months to March. The business conditions index rose from 12 in the three months to March to 17 in the three months to June for large manufacturers, above the consensus forecast for an increase to 14. The equivalent index rose from 11 to 12 for medium-sized manufacturers and from 5 to 7 for small manufacturers. Aggregating manufacturers of all sizes, the index rose from 8 to 11.

Business sentiment in the non-manufacturing sector also strengthened from the previous quarter. For non-manufacturers, the business condition index rose from 20 to 23 for large firms, from 17 to 18 for medium-sized firms, and from 4 to 7 for small firms, with the aggregate index up from 11 to 13.

For firms of all sizes across both the manufacturing sector and the non-manufacturing sector, the business conditions index increased from 10 in the three months to March to 12 in the three months to June.

For all industries, large firms have revised their forecast for capital expenditures in the fiscal year ending in March 2018 to an increase of 8.0 percent year-on-year. Large manufacturers forecast capex to increase 15.4 percent in the current fiscal year, while large non-manufacturing firms forecast an increase of 3.7 percent.

Medium-sized firms across both sectors forecast capex to increase by 14.0 percent this fiscal year, while small firms across the two sectors forecast capex to fall by 20.6 percent. These forecasts result in a forecast for aggregate capex across all firms to increase by 2.9 percent in the fiscal year ended March 2018, up from the previous forecast for a decline of 1.3 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.