JP: Tankan

Thu Dec 14 17:50:00 CST 2017

Consensus Actual Previous
Large Mfrs 23 25 22
Small Mfrs 11 15 10
CAPEX 6.3 4.6

Japan's Tankan survey shows business sentiment in the manufacturing sector has continued to improve in recent months, with sentiment in the non-manufacturing sector also solid but little changed. Firms in the manufacturing sector have revised down their forecasts for capital expenditure in the current fiscal year, but this has been outweighed by stronger capex plans by firms in the non-manufacturing sector.

The business conditions index advanced from 22 in the three months to September to 25 for the three months to December for large manufacturers, above the consensus forecast for an increase to 23. This is the highest level for this index since 2006. The equivalent index rose from 17 to 19 for medium-sized manufacturers and from 10 to 15 for small manufacturers. Aggregating manufacturers of all sizes, the index rose from 15 to 19, consistent with recent PMI survey results also showing stronger conditions in the manufacturing sector in recent months.

Business sentiment in the non-manufacturing sector, however, was little changed from the previous quarter. For non-manufacturers, the business condition index was flat at 23 for large firms, rose from 19 to 20 for medium-sized firms, and from 8 to 9 for small firms, with the aggregate index unchanged at 14.

For firms of all sizes across both the manufacturing sector and the non-manufacturing sector, the business conditions index increased from 15 in the three months to September to 16 in the three months to December.

Large firms in the manufacturing sector have revised down their capital expenditure plans for the fiscal year ending March 2018, now estimating growth of 10.2 percent compared with 14.1 percent previously. Medium-sized and small manufacturers have revised up their plans, but the overall estimate for the sector has fallen from 11.7 percent to 10.1 percent. Meanwhile, large firms in the non-manufacturing sector have revised up their capex plans from 4.0 percent to 5.8 percent, with medium-sized and small firms in the sector also now expecting to spend more, resulting in an increase in the overall estimate for the sector from a previous estimate of 0.8 percent to 4.3 percent. Aggregating these results, capex across all firms in both the manufacturing and non-manufacturing sectors is forecast to increase by 6.3 percent in the fiscal year ended March 2018, up from the previous forecast for an increase of 4.6 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.