| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Large Manufacturer Sentiment Index | 6 | 4 to 8 | 9 | 5 |
| Small Manufacturer Sentiment Index | -4 | -7 to -2 | -5 | -5 |
| Large Firms Capital Expenditure Plans | 13.8% | 12.4% to 14.7% | 13.6% | 13.4% |
Highlights
Confidence among major manufacturers in Japan picked up at a faster-than-expected pace in September after posting its first rise in seven quarters in June as improved supply chains supported the auto industry, the heat wave boosted food and beverage makers and the recent jump in energy prices propped up refiners, offsetting sluggish demand for production machinery amid slower global growth, the Bank of Japan's quarterly Tankan business survey released Monday showed.
The Tankan diffusion index showing sentiment among major manufacturers jumped to 9 in September from 5 in June, coming in well above the median forecast of 6 in a survey of 10 economists (forecasts ranged from 4 to 8).
Relaxed Covid restrictions are supporting restaurants, hotels, retail stores and some other service providers while confidence among electricity and natural gas utilities jumped on rising profits through markups.
The Tankan index measuring sentiment among major non-manufacturers rose to 27 in September from 23 in June for the sixth straight quarter of improvement. It was also above the median forecast of 24 (ranging from 21 to 24).
Japan's Covid border control was widely eased in May and the yen remains weak, leading to a fast recovery in spending by foreign visitors at retail stores and tourist destinations. But government officials have warned that elevated costs for daily necessities are making Japanese households more cautious about spending.
Econoday's Relative Performance Index (RPI) stood at minus 3, just below zero, which indicates the Japanese economy is performing only slightly worse than expected after underperforming with a much wider margin. Excluding the impact of inflation, the RPI was at minus 4.
Looking ahead, large manufacturers foresee a slight improvement in sentiment three months ahead and small manufacturers are seen playing catchup while non-manufacturers, particularly wholesalers and retailers as well as hotel and restaurant operators, expect a pullback in December after the latest improvement as they predict labor shortages will become worse.
The Tankan survey also showed large corporations revised up their plans for investment in equipment slightly for fiscal 2023 that began in April, as largely expected, and smaller firms raised their capex plans much more sharply than forecast. Capex is generally supported by demand for automation amid labor shortages 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 Oct. 30-31, when the bank is expected to leave its basic easing stance unchanged to help achieve stable 2 percent inflation with substantial wage growth while continuing to review the costs and benefits of keeping the yield curve control framework including the negative short-term interest rate target.
Japan's output gap has turned slightly positive after staying in negative territory for three and a half years. It is estimated at plus 0.1 percentage point in the April-June quarter, improving from minus 0.9 point in the previous quarter and minus 9.1 points in April-June 2020, the worst point during the period, according to the Cabinet Office.
The key points from the BoJ Tankan conducted from Aug. 29 until Sept. 29
Many firms are believed to have returned their responses by mid-September. By then, revised second quarter GDP data had been released, showing that Japan's strong economic growth led by a sharp rebound in net exports amid easing import costs in the April-June quarter was revised down as business investment in equipment, private consumption and public works spending all turned out to be weaker than initially estimated.
The Tankan diffusion index showing sentiment among major manufacturers jumped to 9 in September from 5 in June and 1 in March, when it dipped from 7 in December, 8 in September, 9 in June, 14 in March 2022 and 18 in both December and September 2021, when it rose from 14 the previous quarter. It was well above the median forecast of 6 in a survey of 10 economists (forecasts ranged from 4 to 8).
The increase was led by lumber and wood product makers, refineries, makers of ceramic, stone and clay, food and beverage producers and the auto industry. Confidence declined among makers of production and general machinery, producers of non-ferrous metals and processed metals.
The Tankan index measuring sentiment among major non-manufacturers rose to 27 in September from 23 in June for the sixth straight quarter of improvement, following 20 in March, 19 in December, 14 in September, 13 in June, 9 in both March 2022 and in December 2021. It was also above the median forecast of 24 (ranging from 21 to 24).
The improvement was led by electric and gas utilities, the hotels and restaurants category, service providers for businesses, retailers and wholesalers, and real-estate firms. On the downside, service providers for individuals reported a setback after rising previously and leasing companies continued to see a slide in confidence.
Looking three months ahead, major manufacturers expect their sentiment to rise further to 10 (above the median forecast of 6) in December from 9 in September while major non-manufacturers forecast their sentiment will slip to 21 (the median forecast was 24) after the latest improvement to 27 from 23.
Lumber and wood product makers foresee a sharp decline in the December quarter and both automakers and food and beverage producers expect a downward adjustment after the recent improvement. Among non-manufacturers, wholesalers expect a sharp drop and retailers see a pullback in December. Hotels and restaurants remain cautious about their outlook, forecasting a slight drop in sentiment. Electricity and gas utilities also anticipate a slight drop after the jump in September.
The sentiment index for smaller manufacturers stood at -5 (minus 5) in September, unchanged from June. It was slightly better than -6 (minus 6) seen in March, when it fell from -2 in December and following -4 (minus 4) in the previous three quarters. The latest figure was just below the median forecast of -4 (range: from -7 to -2).
The index for their non-manufacturing counterparts posted the sixth consecutive improvement in September, rising to 12 from 11 in June, as expected (forecasts ranged from 9 to 14). It has gradually risen from 8 in March, 6 in December, 2 in September, -1 (minus 1) in June and -6 (minus 6) in March 2022.
Smaller manufacturers expect their December sentiment index to be at -2 (minus 2), up from -5 (minus 5) in September (the median economist forecast was -5) while smaller non-manufacturers expect their sentiment to slide to 8 from 12 in September (the median forecast was 11).
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.
Companies Revise Up Capex Plans for Fiscal 2023, Sharp Rise Among Smaller Firms
Major firms projected their plans for business investment in equipment to rise a combined 13.6 percent on the year in fiscal 2023 ending in March 2024, revised up slightly from the 13.4 percent increase planned in the June survey and up sharply from a modest 3.2 percent planned in March. The median forecast by nine economists was a 13.8 percent increase, ranging from 12.4 percent to 14.7 percent gains.
Smaller firms revised up their combined capital spending to a sharply higher 8.0 percent rise in fiscal 2023 from the 2.4 percent increase planned three months earlier and an unusually bullish 1.4 percent rise projected in March. It was well above than the consensus call of a 4.4 percent increase (ranging from a 2.3 percent drop to a 5.9 percent rise). Small businesses tend to forecast a decline at the start of the new fiscal year and revise up their plans later in the year.
Firms See Inflation Below BOJ's 2 percent Target in Longer Term
Manufacturers, big and small, see a slightly slower increase in general prices for the coming 12 months, compared to their expectations in the previous survey, while non-manufactures expect no change. Large manufacturers predict a slight pickup in inflation in three to five years ahead, but other sectors see no to little change. Overall, firms continue to expect inflation to fall slightly below the BOJ's 2 percent inflation target in the longer run.
Major manufacturers on average forecast an annual inflation rate of 2.1 percent a year from now (2.2 percent in the previous survey), 1.8 percent in three years (1.7 percent) and 1.7 percent in five years (1.6 percent). Large non-manufacturers expect inflation at 2.0 percent in a year (2.0 percent previously), 1.6 percent in three years (1.6 percent) and 1.5 percent in five years (1.4 percent).
Producer inflation in Japan eased for the eighth straight month to 3.2 percent in August from 3.4 percent in July, staying at an over two-year low, as the government's utility subsidies continued to cut electricity and natural gas costs and some commodity prices remained depressed or posted slower gains compared to last year's spike, BoJ data released last month showed.
Firms Continue to Expect Higher Dollar, Euro Vs. Yen in Fiscal 2023
In the September quarter Tankan survey, Japanese firms assumed the dollar/yen exchange rate to average at ¥135.75 for fiscal 2023, up further from ¥132.43 provided in June, while assuming the euro/yen forex rate to average at ¥144.62, also up further from ¥140.11 seen three months ago.
The interest rate differential between the U.S. and Japan remains wide as investors look for higher returns. The Federal Reserve has paused in its current tightening cycle but it is expected to raise interest rates again this year while the Bank of Japan is unlikely to switch to tightening from easing soon, although its board has been debating the costs and benefits of the yield curve control framework.
The Tankan diffusion index showing sentiment among major manufacturers jumped to 9 in September from 5 in June, coming in well above the median forecast of 6 in a survey of 10 economists (forecasts ranged from 4 to 8).
Relaxed Covid restrictions are supporting restaurants, hotels, retail stores and some other service providers while confidence among electricity and natural gas utilities jumped on rising profits through markups.
The Tankan index measuring sentiment among major non-manufacturers rose to 27 in September from 23 in June for the sixth straight quarter of improvement. It was also above the median forecast of 24 (ranging from 21 to 24).
Japan's Covid border control was widely eased in May and the yen remains weak, leading to a fast recovery in spending by foreign visitors at retail stores and tourist destinations. But government officials have warned that elevated costs for daily necessities are making Japanese households more cautious about spending.
Econoday's Relative Performance Index (RPI) stood at minus 3, just below zero, which indicates the Japanese economy is performing only slightly worse than expected after underperforming with a much wider margin. Excluding the impact of inflation, the RPI was at minus 4.
Looking ahead, large manufacturers foresee a slight improvement in sentiment three months ahead and small manufacturers are seen playing catchup while non-manufacturers, particularly wholesalers and retailers as well as hotel and restaurant operators, expect a pullback in December after the latest improvement as they predict labor shortages will become worse.
The Tankan survey also showed large corporations revised up their plans for investment in equipment slightly for fiscal 2023 that began in April, as largely expected, and smaller firms raised their capex plans much more sharply than forecast. Capex is generally supported by demand for automation amid labor shortages 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 Oct. 30-31, when the bank is expected to leave its basic easing stance unchanged to help achieve stable 2 percent inflation with substantial wage growth while continuing to review the costs and benefits of keeping the yield curve control framework including the negative short-term interest rate target.
Japan's output gap has turned slightly positive after staying in negative territory for three and a half years. It is estimated at plus 0.1 percentage point in the April-June quarter, improving from minus 0.9 point in the previous quarter and minus 9.1 points in April-June 2020, the worst point during the period, according to the Cabinet Office.
The key points from the BoJ Tankan conducted from Aug. 29 until Sept. 29
Many firms are believed to have returned their responses by mid-September. By then, revised second quarter GDP data had been released, showing that Japan's strong economic growth led by a sharp rebound in net exports amid easing import costs in the April-June quarter was revised down as business investment in equipment, private consumption and public works spending all turned out to be weaker than initially estimated.
The Tankan diffusion index showing sentiment among major manufacturers jumped to 9 in September from 5 in June and 1 in March, when it dipped from 7 in December, 8 in September, 9 in June, 14 in March 2022 and 18 in both December and September 2021, when it rose from 14 the previous quarter. It was well above the median forecast of 6 in a survey of 10 economists (forecasts ranged from 4 to 8).
The increase was led by lumber and wood product makers, refineries, makers of ceramic, stone and clay, food and beverage producers and the auto industry. Confidence declined among makers of production and general machinery, producers of non-ferrous metals and processed metals.
The Tankan index measuring sentiment among major non-manufacturers rose to 27 in September from 23 in June for the sixth straight quarter of improvement, following 20 in March, 19 in December, 14 in September, 13 in June, 9 in both March 2022 and in December 2021. It was also above the median forecast of 24 (ranging from 21 to 24).
The improvement was led by electric and gas utilities, the hotels and restaurants category, service providers for businesses, retailers and wholesalers, and real-estate firms. On the downside, service providers for individuals reported a setback after rising previously and leasing companies continued to see a slide in confidence.
Looking three months ahead, major manufacturers expect their sentiment to rise further to 10 (above the median forecast of 6) in December from 9 in September while major non-manufacturers forecast their sentiment will slip to 21 (the median forecast was 24) after the latest improvement to 27 from 23.
Lumber and wood product makers foresee a sharp decline in the December quarter and both automakers and food and beverage producers expect a downward adjustment after the recent improvement. Among non-manufacturers, wholesalers expect a sharp drop and retailers see a pullback in December. Hotels and restaurants remain cautious about their outlook, forecasting a slight drop in sentiment. Electricity and gas utilities also anticipate a slight drop after the jump in September.
The sentiment index for smaller manufacturers stood at -5 (minus 5) in September, unchanged from June. It was slightly better than -6 (minus 6) seen in March, when it fell from -2 in December and following -4 (minus 4) in the previous three quarters. The latest figure was just below the median forecast of -4 (range: from -7 to -2).
The index for their non-manufacturing counterparts posted the sixth consecutive improvement in September, rising to 12 from 11 in June, as expected (forecasts ranged from 9 to 14). It has gradually risen from 8 in March, 6 in December, 2 in September, -1 (minus 1) in June and -6 (minus 6) in March 2022.
Smaller manufacturers expect their December sentiment index to be at -2 (minus 2), up from -5 (minus 5) in September (the median economist forecast was -5) while smaller non-manufacturers expect their sentiment to slide to 8 from 12 in September (the median forecast was 11).
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.
Companies Revise Up Capex Plans for Fiscal 2023, Sharp Rise Among Smaller Firms
Major firms projected their plans for business investment in equipment to rise a combined 13.6 percent on the year in fiscal 2023 ending in March 2024, revised up slightly from the 13.4 percent increase planned in the June survey and up sharply from a modest 3.2 percent planned in March. The median forecast by nine economists was a 13.8 percent increase, ranging from 12.4 percent to 14.7 percent gains.
Smaller firms revised up their combined capital spending to a sharply higher 8.0 percent rise in fiscal 2023 from the 2.4 percent increase planned three months earlier and an unusually bullish 1.4 percent rise projected in March. It was well above than the consensus call of a 4.4 percent increase (ranging from a 2.3 percent drop to a 5.9 percent rise). Small businesses tend to forecast a decline at the start of the new fiscal year and revise up their plans later in the year.
Firms See Inflation Below BOJ's 2 percent Target in Longer Term
Manufacturers, big and small, see a slightly slower increase in general prices for the coming 12 months, compared to their expectations in the previous survey, while non-manufactures expect no change. Large manufacturers predict a slight pickup in inflation in three to five years ahead, but other sectors see no to little change. Overall, firms continue to expect inflation to fall slightly below the BOJ's 2 percent inflation target in the longer run.
Major manufacturers on average forecast an annual inflation rate of 2.1 percent a year from now (2.2 percent in the previous survey), 1.8 percent in three years (1.7 percent) and 1.7 percent in five years (1.6 percent). Large non-manufacturers expect inflation at 2.0 percent in a year (2.0 percent previously), 1.6 percent in three years (1.6 percent) and 1.5 percent in five years (1.4 percent).
Producer inflation in Japan eased for the eighth straight month to 3.2 percent in August from 3.4 percent in July, staying at an over two-year low, as the government's utility subsidies continued to cut electricity and natural gas costs and some commodity prices remained depressed or posted slower gains compared to last year's spike, BoJ data released last month showed.
Firms Continue to Expect Higher Dollar, Euro Vs. Yen in Fiscal 2023
In the September quarter Tankan survey, Japanese firms assumed the dollar/yen exchange rate to average at ¥135.75 for fiscal 2023, up further from ¥132.43 provided in June, while assuming the euro/yen forex rate to average at ¥144.62, also up further from ¥140.11 seen three months ago.
The interest rate differential between the U.S. and Japan remains wide as investors look for higher returns. The Federal Reserve has paused in its current tightening cycle but it is expected to raise interest rates again this year while the Bank of Japan is unlikely to switch to tightening from easing soon, although its board has been debating the costs and benefits of the yield curve control framework.
Market Consensus Before Announcement
The Bank of Japan's quarterly Tankan business survey is expected to show confidence among major manufacturers in Japan picked up only slightly in September after posting its first rise in seven quarters in June as improved supply chains are overshadowed by slowing global growth, while widely eased Covid restrictions are supporting restaurants, hotels and other service providers.
Japan's Covid border control was widely eased in May and the yen remains weak, leading to a fast recovery in spending by foreign visitors at retail stores and tourist destinations. But some economists warn that elevated costs for daily necessities are prompting Japanese households to be more cautious about spending.
The Tankan diffusion index showing sentiment among major manufacturers is forecast to rise slightly to 6 in September from 5 in June, when it rose more than expected from 1 in March. The index measuring sentiment among major non-manufacturers is seen improving slightly to 24 from 23 in June, which would be a sixth straight quarterly improvement, after edging up to 20 in March from 19 in December.
The sentiment index for smaller manufacturers is forecast at minus 4 in September, up slight from minus 5 in June. The index for their non-manufacturing counterparts is seen posting a sixth consecutive improvement in September, rising to 12 from 11 in June.
The Tankan survey is expected to show both large and small firms are revising up their plans for investment in equipment for fiscal 2023 that began on April 1. Capex is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
Major firms are projected to show their plans for business investment in equipment will rise a combined 13.8 percent on the year in fiscal 2023, revised up slightly from the 13.4 percent increase planned in the June survey and up sharply from a modest 3.2 percent planned in March. Smaller firms are also expected to revise up their combined capital spending plans to a solid 4.4 percent in fiscal 2023 from the 2.4 percent rise planned three months earlier and an unusually bullish 1.4 percent rise projected in March. Small businesses tend to forecast a decline at the start of the new fiscal year and revise up their plans later in the year.
The BoJ will analyze this and other pieces of data ahead of its next policy meeting on Oct. 30-31, when the bank is expected to leave its basic easing stance unchanged to help achieve stable 2 percent inflation with substantial wage growth while continuing to review the costs and benefits of keeping the yield curve control framework including the negative short-term interest rate target.
Japan's Covid border control was widely eased in May and the yen remains weak, leading to a fast recovery in spending by foreign visitors at retail stores and tourist destinations. But some economists warn that elevated costs for daily necessities are prompting Japanese households to be more cautious about spending.
The Tankan diffusion index showing sentiment among major manufacturers is forecast to rise slightly to 6 in September from 5 in June, when it rose more than expected from 1 in March. The index measuring sentiment among major non-manufacturers is seen improving slightly to 24 from 23 in June, which would be a sixth straight quarterly improvement, after edging up to 20 in March from 19 in December.
The sentiment index for smaller manufacturers is forecast at minus 4 in September, up slight from minus 5 in June. The index for their non-manufacturing counterparts is seen posting a sixth consecutive improvement in September, rising to 12 from 11 in June.
The Tankan survey is expected to show both large and small firms are revising up their plans for investment in equipment for fiscal 2023 that began on April 1. Capex is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
Major firms are projected to show their plans for business investment in equipment will rise a combined 13.8 percent on the year in fiscal 2023, revised up slightly from the 13.4 percent increase planned in the June survey and up sharply from a modest 3.2 percent planned in March. Smaller firms are also expected to revise up their combined capital spending plans to a solid 4.4 percent in fiscal 2023 from the 2.4 percent rise planned three months earlier and an unusually bullish 1.4 percent rise projected in March. Small businesses tend to forecast a decline at the start of the new fiscal year and revise up their plans later in the year.
The BoJ will analyze this and other pieces of data ahead of its next policy meeting on Oct. 30-31, when the bank is expected to leave its basic easing stance unchanged to help achieve stable 2 percent inflation with substantial wage growth while continuing to review the costs and benefits of keeping the yield curve control framework including the negative short-term interest rate target.
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.
