| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Large Manufacturer Sentiment Index | 3 | -2 to 5 | 1 | 7 |
| Small Manufacturer Sentiment Index | -6 | -11 to -4 | -6 | -2 |
| Large Firms Capital Expenditure Plans | 14.0% | 11.1% to 18.0% | 16.4% | 19.2% |
Highlights
Confidence among major manufacturers in Japan drifted lower for the fifth straight quarter in March amid global slowdown while the Japanese government's travel discount program and eased Covid border control continued to support sentiment among service providers, the Bank of Japan's quarterly Tankan business survey for December released Monday showed.
Looking ahead, some manufacturers are optimistic about their business climates while many non-manufacturers project a slip in their sentiment for June.
Many firms are believed to have returned their responses by mid-March, when consumers were traveling and eating out more freely, having seen the impact of the eighth wave of the pandemic wane from its peak in January. The government lifted its long-held face-covering public health mandate in March but many people continue wearing a mask at workplaces and during their commute.
The survey also showed large firms had solid plans for investment in equipment for fiscal 2023 starting on April 1 while smaller firms projected a rise at the initial stage, which is unusually bullish. Capex is supported by demand for automation amid labor shortages in some sectors as well as government-led digital transformation and emission control.
The BoJ will analyze this and other pieces of data ahead of its next policy meeting on April 27-28, at which the bank is expected to leave its easing stance unchanged in a unanimous vote to continue supporting the economy's recovery from the pandemic-caused slump and achieve stable 2 percent inflation that comes with substantial wage growth. Japan's output gap has been in negative territory since the last quarter of 2019, by 2.0 percentage points in the latest estimate by the Cabinet Office.
The Econoday Consensus Divergence Index stood at plus 12, above zero, which indicates the Japanese economy is performing better than expected after underperforming recently. Excluding the impact of inflation, the index was at plus 12.
The key points from the BoJ Tankan conducted from Feb. 27 until March 31
* The Tankan diffusion index showing sentiment among major manufacturers stood at 1 in March, down from 7 in December, 8 in September, 9 in June, 14 in March 20022 and 18 in both December and September 2021, when it rose from 14 the previous quarter. It was below Econoday's median forecast of 3 in a survey of 11 economists (forecasts ranged from minus 2 to 5).
* The Tankan index measuring sentiment among major non-manufacturers improved slightly to 20 from 19 for December, 14 in September, 13 in June, 9 in both March 2022 and in December 2021. It was in line with the median forecast of 20 (ranging from 18 to 22).
* Looking three months ahead, major manufacturers expect their sentiment to edge up to 3 in June after worsening to 1 in March (the median economist forecast was 4) while major non-manufacturers forecast their sentiment will slip to 15 from 20 (the median forecast was 18).
* The sentiment index for smaller manufacturers stood at minus 6 in March, down from minus 2 in December, minus 4 in the previous three quarters and minus 1 in December 2021. It was in line with the median forecast of minus 6 (range: from minus 11 to minus 4).
* The index for their non-manufacturing counterparts stood at 8 in March, up from 6 in December, 2 in September, minus 1 in June, minus 6 in March 2022 and minus 4 in December 2021. It came in firmer than the median forecast of 6 (range: from 2 to 9).
* Smaller manufacturers expect their June sentiment index to be at minus 4 in June, up slightly from minus 6 March (the median forecast was minus 6) while smaller non-manufacturers expect their sentiment to decline to 3 after improving to 8 in March (the forecast was 2).
* The diffusion index is calculated by subtracting the percentage of companies reporting deteriorating business conditions from the percentage of those reporting an improvement. A positive figure indicates the majority of firms see better business conditions.
Large Firms See Solid Capex Plans for Fiscal 2023
* Major firms projected their plans for business investment in equipment to rise a combined 3.2 percent on the year in fiscal 2023 ending in March 2024, a solid start given slowing global demand and concerns about banking failures in the U.S. and Europe. The median forecast by nine economists was a 3.2 percent increase, ranging from 0.5 percent to 4.9 percent gains.
* Smaller firms expect their combined capital spending to rise 1.4 percent in fiscal 2023, an unusually bullish figure, given that they tend to forecast a decline at the start of the new fiscal year and revise up their plans later in the year. The median forecast was a 10.7 percent decrease, ranging from 17.0 percent to 9.0 percent declines.
* As for fiscal 2022, large firms revised down their plans for business investment to a combined 16.4 percent increase from their plans of a 19.2 percent rise presented in December. The pace is still high, compared to a 2.3 percent drop in fiscal 2021. It was above the median economist forecast for a 14.0 percent rise (forecasts by 10 economists ranged from 11.1 percent to 18.0 percent gains).
* Smaller businesses reported their capex plans for fiscal 2022 would rise by a combined 0.7 percent from the previous fiscal year, unexpectedly revised down from a 3.8 percent rise planned in March. It was well below the median forecast of a 5.0 percent increase by nine economists (range: 0.2 percent to 5.9 percent gains). Their combined capital investment for fiscal 2021 increased 6.2 percent.
Firms See Inflation to Drift Lower in Medium to Longer Term
* Companies see a slight uptick in general prices for the next few years, compared to their expectations in the previous survey, but they expect prices to stabilize below the BoJ's 2 percent inflation target in the longer term. Major manufacturers on average forecast an annual inflation rate of 2.4 percent a year from now (versus 2.3 percent in the previous survey), 1.8 percent in three years (versus 1.7 percent) and 1.6 percent in five years (versus 1.6 percent). Large non-manufacturers expect inflation at 2.2 percent in a year (versus 2.0 percent in December), 1.6 percent in three years (versus 1.5 percent) and 1.4 percent in five years (versus 1.4 percent).
* Companies are faced with elevated costs and labor shortages as well as slower demand from overseas. Consumers are also trimming some spending amid rising costs for food, beverages and some durable goods as many firms are still trying to pass high producer and import costs onto customers.
* Producer inflation in Japan remains high but eased to 8.2 percent in February from 9.5 percent in January as the government is trying to cap sharp increases in energy costs while fuel and lumber prices fell at a faster pace amid slowing global demand. Consumer inflation in Japan slowed significantly to just above 3 percent in February in two key measures after hitting four-decade highs of over 4 percent in January as the government expanded subsidies to electricity and natural gas suppliers aimed at easing the pain of households hit by falling real wages.
Looking ahead, some manufacturers are optimistic about their business climates while many non-manufacturers project a slip in their sentiment for June.
Many firms are believed to have returned their responses by mid-March, when consumers were traveling and eating out more freely, having seen the impact of the eighth wave of the pandemic wane from its peak in January. The government lifted its long-held face-covering public health mandate in March but many people continue wearing a mask at workplaces and during their commute.
The survey also showed large firms had solid plans for investment in equipment for fiscal 2023 starting on April 1 while smaller firms projected a rise at the initial stage, which is unusually bullish. Capex is supported by demand for automation amid labor shortages in some sectors as well as government-led digital transformation and emission control.
The BoJ will analyze this and other pieces of data ahead of its next policy meeting on April 27-28, at which the bank is expected to leave its easing stance unchanged in a unanimous vote to continue supporting the economy's recovery from the pandemic-caused slump and achieve stable 2 percent inflation that comes with substantial wage growth. Japan's output gap has been in negative territory since the last quarter of 2019, by 2.0 percentage points in the latest estimate by the Cabinet Office.
The Econoday Consensus Divergence Index stood at plus 12, above zero, which indicates the Japanese economy is performing better than expected after underperforming recently. Excluding the impact of inflation, the index was at plus 12.
The key points from the BoJ Tankan conducted from Feb. 27 until March 31
* The Tankan diffusion index showing sentiment among major manufacturers stood at 1 in March, down from 7 in December, 8 in September, 9 in June, 14 in March 20022 and 18 in both December and September 2021, when it rose from 14 the previous quarter. It was below Econoday's median forecast of 3 in a survey of 11 economists (forecasts ranged from minus 2 to 5).
* The Tankan index measuring sentiment among major non-manufacturers improved slightly to 20 from 19 for December, 14 in September, 13 in June, 9 in both March 2022 and in December 2021. It was in line with the median forecast of 20 (ranging from 18 to 22).
* Looking three months ahead, major manufacturers expect their sentiment to edge up to 3 in June after worsening to 1 in March (the median economist forecast was 4) while major non-manufacturers forecast their sentiment will slip to 15 from 20 (the median forecast was 18).
* The sentiment index for smaller manufacturers stood at minus 6 in March, down from minus 2 in December, minus 4 in the previous three quarters and minus 1 in December 2021. It was in line with the median forecast of minus 6 (range: from minus 11 to minus 4).
* The index for their non-manufacturing counterparts stood at 8 in March, up from 6 in December, 2 in September, minus 1 in June, minus 6 in March 2022 and minus 4 in December 2021. It came in firmer than the median forecast of 6 (range: from 2 to 9).
* Smaller manufacturers expect their June sentiment index to be at minus 4 in June, up slightly from minus 6 March (the median forecast was minus 6) while smaller non-manufacturers expect their sentiment to decline to 3 after improving to 8 in March (the forecast was 2).
* The diffusion index is calculated by subtracting the percentage of companies reporting deteriorating business conditions from the percentage of those reporting an improvement. A positive figure indicates the majority of firms see better business conditions.
Large Firms See Solid Capex Plans for Fiscal 2023
* Major firms projected their plans for business investment in equipment to rise a combined 3.2 percent on the year in fiscal 2023 ending in March 2024, a solid start given slowing global demand and concerns about banking failures in the U.S. and Europe. The median forecast by nine economists was a 3.2 percent increase, ranging from 0.5 percent to 4.9 percent gains.
* Smaller firms expect their combined capital spending to rise 1.4 percent in fiscal 2023, an unusually bullish figure, given that they tend to forecast a decline at the start of the new fiscal year and revise up their plans later in the year. The median forecast was a 10.7 percent decrease, ranging from 17.0 percent to 9.0 percent declines.
* As for fiscal 2022, large firms revised down their plans for business investment to a combined 16.4 percent increase from their plans of a 19.2 percent rise presented in December. The pace is still high, compared to a 2.3 percent drop in fiscal 2021. It was above the median economist forecast for a 14.0 percent rise (forecasts by 10 economists ranged from 11.1 percent to 18.0 percent gains).
* Smaller businesses reported their capex plans for fiscal 2022 would rise by a combined 0.7 percent from the previous fiscal year, unexpectedly revised down from a 3.8 percent rise planned in March. It was well below the median forecast of a 5.0 percent increase by nine economists (range: 0.2 percent to 5.9 percent gains). Their combined capital investment for fiscal 2021 increased 6.2 percent.
Firms See Inflation to Drift Lower in Medium to Longer Term
* Companies see a slight uptick in general prices for the next few years, compared to their expectations in the previous survey, but they expect prices to stabilize below the BoJ's 2 percent inflation target in the longer term. Major manufacturers on average forecast an annual inflation rate of 2.4 percent a year from now (versus 2.3 percent in the previous survey), 1.8 percent in three years (versus 1.7 percent) and 1.6 percent in five years (versus 1.6 percent). Large non-manufacturers expect inflation at 2.2 percent in a year (versus 2.0 percent in December), 1.6 percent in three years (versus 1.5 percent) and 1.4 percent in five years (versus 1.4 percent).
* Companies are faced with elevated costs and labor shortages as well as slower demand from overseas. Consumers are also trimming some spending amid rising costs for food, beverages and some durable goods as many firms are still trying to pass high producer and import costs onto customers.
* Producer inflation in Japan remains high but eased to 8.2 percent in February from 9.5 percent in January as the government is trying to cap sharp increases in energy costs while fuel and lumber prices fell at a faster pace amid slowing global demand. Consumer inflation in Japan slowed significantly to just above 3 percent in February in two key measures after hitting four-decade highs of over 4 percent in January as the government expanded subsidies to electricity and natural gas suppliers aimed at easing the pain of households hit by falling real wages.
Market Consensus Before Announcement
Confidence among major manufacturers in Japan is expected to have drifted lower for the fifth straight quarter in March amid global slowdown while the Japanese government's travel discount program and eased Covid border control appear to be supporting sentiment among service providers.
The Tankan diffusion index showing sentiment among major manufacturers is forecast at 3 in March, down from 7 in December, 8 in September, 9 in June, 14 in March 20022 and 18 in both December and September 2021, when it rose from 14 the previous quarter. The Tankan index measuring sentiment among major non-manufacturers is seen improving slightly to 20 from 19 for December and following 14 in September, 13 in June, 9 in both March 2022 and in December 2021.
The sentiment index for smaller manufacturers is forecast at minus 6 in March, down from minus 2 in December and following minus 4 in the previous three quarters and minus 1 in December 2021. The index for their non-manufacturing counterparts is seen at 6 in March, unchanged from 6 in December and compared to 2 in September, minus 1 in June, minus 6 in March 2022 and minus 4 in December 2021.
Many firms are believed to have returned their responses by mid-March, when consumers were traveling and eating out more freely, having seen the impact of the eighth wave of the pandemic wane from its peak in January. The government lifted its long-held face-covering public health mandate in March but many people continue wearing masks at workplaces and in other closed spaces.
The survey is expected to show large firms had solid plans for investment in equipment for fiscal 2023 starting on April 1 while smaller firms projected a decline at the initial stage, as usual, before revising up their plans later in the fiscal year.
Major firms are projected to show their plans for business investment in equipment will rise a combined 3.2 percent on the year in fiscal 2023 ending in March 2024, a solid figure despite weaker global demand and concerns about banking failures in the US and Europe. Smaller firms are expected to forecast their combined capital spending will drop 10.7 percent in fiscal 2023, providing conservative plans at the start of the new fiscal year as they usually do. They tend to revise up their plans later in the year.
For fiscal 2022, large firms are expected to revise down their plans for business investment to a combined 14.0 percent increase from a 19.2 percent rise projected in December. That pace would be still high, compared to a 2.3 percent drop in fiscal 2021. Smaller businesses are likely to report their capex plans for fiscal 2022 will rise by a combined 5.0 percent from the previous fiscal year, revised up from a 3.8 percent rise planned in December. Their combined capital investment increased 6.2 percent in fiscal 2021.
Capex is supported by demand for automation amid labor shortages in some sectors as well as government-led digital transformation and emission control.
The Tankan diffusion index showing sentiment among major manufacturers is forecast at 3 in March, down from 7 in December, 8 in September, 9 in June, 14 in March 20022 and 18 in both December and September 2021, when it rose from 14 the previous quarter. The Tankan index measuring sentiment among major non-manufacturers is seen improving slightly to 20 from 19 for December and following 14 in September, 13 in June, 9 in both March 2022 and in December 2021.
The sentiment index for smaller manufacturers is forecast at minus 6 in March, down from minus 2 in December and following minus 4 in the previous three quarters and minus 1 in December 2021. The index for their non-manufacturing counterparts is seen at 6 in March, unchanged from 6 in December and compared to 2 in September, minus 1 in June, minus 6 in March 2022 and minus 4 in December 2021.
Many firms are believed to have returned their responses by mid-March, when consumers were traveling and eating out more freely, having seen the impact of the eighth wave of the pandemic wane from its peak in January. The government lifted its long-held face-covering public health mandate in March but many people continue wearing masks at workplaces and in other closed spaces.
The survey is expected to show large firms had solid plans for investment in equipment for fiscal 2023 starting on April 1 while smaller firms projected a decline at the initial stage, as usual, before revising up their plans later in the fiscal year.
Major firms are projected to show their plans for business investment in equipment will rise a combined 3.2 percent on the year in fiscal 2023 ending in March 2024, a solid figure despite weaker global demand and concerns about banking failures in the US and Europe. Smaller firms are expected to forecast their combined capital spending will drop 10.7 percent in fiscal 2023, providing conservative plans at the start of the new fiscal year as they usually do. They tend to revise up their plans later in the year.
For fiscal 2022, large firms are expected to revise down their plans for business investment to a combined 14.0 percent increase from a 19.2 percent rise projected in December. That pace would be still high, compared to a 2.3 percent drop in fiscal 2021. Smaller businesses are likely to report their capex plans for fiscal 2022 will rise by a combined 5.0 percent from the previous fiscal year, revised up from a 3.8 percent rise planned in December. Their combined capital investment increased 6.2 percent in fiscal 2021.
Capex is supported by demand for automation amid labor shortages in some sectors as well as government-led digital transformation and emission control.
Definition
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.
Description
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.
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.
