JP: Tankan

Sun Oct 01 18:50:00 CDT 2017

Consensus Actual Previous
Large Mfrs 18 22 17
Small Mfrs 8 10 7
CAPEX 4.6 2.9

Japan's Tankan survey shows business sentiment in the manufacturing sector has recorded a strong improvement in recent months, with sentiment in the non-manufacturing sector also solid but little changed. Large firms across both sectors have revised down their forecasts for growth in capital expenditures in the current fiscal year, but this has been outweighed by upward revisions to forecasts made by medium-sized and small firms in both sectors.

The business conditions index advanced from 17 in the three months to June to 22 in the three months to September for large manufacturers, above the consensus forecast for an increase to 18. The equivalent index rose from 12 to 17 for medium-sized manufacturers and from 7 to 10 for small manufacturers. Aggregating manufacturers of all sizes, the index rose from 11 to 15.

Business sentiment in the non-manufacturing sector was little changed from the previous quarter. For non-manufacturers, the business condition index was flat at 23 for large firms, rose from 18 to 19 for medium-sized firms, and from 7 to 8 for small firms, with the aggregate index up from 13 to 14.

For firms of all sizes across both the manufacturing sector and the non-manufacturing sector, the business conditions index increased from 12 in the three months to June to 15 in the three months to September.

For all industries, large firms expect capital expenditures in the fiscal year ending in March 2018 to increase by 7.7 percent, down from their previous forecast of 8.0 percent. Large manufacturers forecast capex to increase 14.1 percent in the current fiscal year (down from the previous forecast of 15.4 percent), while large non-manufacturing firms forecast an increase of 4.0 percent (up from their previous forecast of 3.7 percent).

Medium-sized firms across both sectors forecast capex to increase by 17.2 percent this fiscal year (up from the previous forecast of 14.0 percent), while small firms across the two sectors forecast capex to fall by 14.1 percent (up from the previous forecast for a fall of 20.6 percent). Aggregating these results, capex across all firms in both the manufacturing and non-manufacturing sectors is forecast to increase by 4.6 percent in the fiscal year ended March 2018, well up from the previous forecast for an increase of 2.9 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.