| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Large Manufacturer Sentiment Index | 10 | 7 to 12 | 12 | 9 |
| Small Manufacturer Sentiment Index | -4 | -7 to -3 | 1 | -5 |
| Large Firms Capital Expenditure Plans | 12.7% | 11.8% to 13.0% | 13.5% | 13.6% |
Highlights
Key points from BoJ December Quarter Tankan business survey:
--Major manufacturers' sentiment posts 3rd straight rise on improved supply chains
--But outlook cautious on high costs, labor shortages
--Major non-manufacturers' confidence up for 7th straight quarter
--Many sectors expect pullback in March in payback for recent improvement
--Large firms' combined fiscal 2023 capex plans revised down only slightly; small firms raise theirs further
Confidence among manufacturers and non-manufacturers in Japan all picked up more than expected in December on improved supply chains, a bottoming chip market and easing import costs after a sharp improvement in September, but many industries are cautious about their near-term outlook amid slowing global growth and widespread domestic labor shortages, the Bank of Japan's quarterly Tankan business survey released Wednesday showed.
The Tankan diffusion index showing sentiment among major manufacturers posted its third straight quarterly increase in December, led by non-ferrous metal producers, general machinery makers and the auto industry. It climbed to 12 from 9 in September, when it rose from 5 in June and 1 in March. It was above the median forecast of 10 (forecasts ranged from 7 to 12) and compared to 14 in March 2022 and a recent peak of 18 in both December and September 2021.
Restaurants, hotels, retail stores and some other service providers continued benefiting from widely eased Covid public health restrictions, which have supported traveling and eating out as well as spending by foreign visitors, which has recovered to pre-pandemic levels.
The index measuring sentiment among major non-manufacturers marked its seventh consecutive quarterly improvement, led by real-estate firms, telecommunications service providers and the hotels/restaurants category. It rose to 30 in December from 27 in September, when it climbed to a 32-year high (the best reading since 33 in December 1991) from 23 in June. It was above the median forecast of 28 (ranging from 27 to 30) and the highest since 33 in December 1991.
Major firms projected their plans for business investment in equipment would rise a combined 13.5 percent on the year in fiscal 2023 ending in March 2024, revised down only slightly from the 13.6 percent increase planned in the September survey but still higher than a modest 3.2 percent rise planned in March. The median forecast was a 12.7 percent increase (forecasts ranged from 11.8 percent to 13.0 percent gains).
Smaller firms revised up their combined capital spending plans further to a 10.3 percent rise in fiscal 2023 after jacking them up to an 8.0 percent rise in September from a 2.4 percent increase planned in June and an unusually bullish 1.4 percent rise projected in March. It was also above than the consensus forecast of a 9.2 percent increase (ranging from 8.5 percent to 10.7 percent gains). Small businesses tend to forecast a decline at the start of the new fiscal year and revise up their plans later in the year.
Capex is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
Econoday's Relative Performance Index (RPI) stood at plus 13, above zero, which indicates the Japanese economy is performing better than expected after slightly underperforming recently. Excluding the impact of inflation, the RPI was at plus 30.
BoJ policymakers will analyze this and other pieces of data ahead of their next policy meeting on Dec. 18-19, when they are expected to leave its basic easing stance unchanged to help achieve stable 2 percent inflation with sustained wage growth while discussing whether it is necessary to tweak its yield curve control framework further and when to lift the negative short-term interest rate target.
Japan's output gap slipped back into negative territory in the third quarter after turning slightly positive in the second quarter and previously staying negative for three and a half years.
Other details from the BoJ Tankan conducted from Nov. 9 until Dec. 12.
Many firms are believed to have returned their responses by late November. By then, preliminary GDP data had been released, showing that Japan's economy posted its first contraction in three quarters in July-September, down 0.5 percent on quarter, or an annualized 2.1 percent, as private inventories plunged, net exports slipped after a sharp rebound in April-June, public works spending slowed, pent-up demand for eating out and traveling waned and firms turned cautious about capital investment. Last week the figures were revised down to 0.7% contraction (annualized 2.9%) and it is now the first contraction in four quarters due to annual revisions.
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.
Looking three months ahead, major manufacturers expect their sentiment to fall back to 8 (just below the median forecast of 9) in March from 12 in December while major non-manufacturers forecast their sentiment will slip to 24 (the median forecast was 26) after the latest improvement to 30 from 27.
Lumber and wood product makers continued to foresee a sharp decline in the March quarter while automakers and food and beverage producers expect a pullback after the recent improvement. Steel mills and pulp and paper makers also see sharp drops after modest gains. Among non-manufacturers, real-estate firms expect to give up all the gain made in December. Hotels and restaurants remain cautious about their outlook, forecasting a sharp drop in March sentiment. Electricity and gas utilities also anticipate a sharp drop after a jump in September and a modest rise in December.
The sentiment index for smaller manufacturers stood at 1 (plus 1) in December, up from -5 (minus 5) in September. It was above the median forecast of -4 (minus 4) and the first positive reading since 6 (plus 6) in the March quarter of 2019.
The index for their non-manufacturing counterparts posted the seventh consecutive improvement in December, rising to a 32-year high of 14 from 12 in September and coming in firmer than the median forecast of 12. It is the best reading since 21 in September 1991.
Smaller manufacturers expect their March sentiment index to be at -1 (minus 1), down from 1 (plus 1) in December (the median economist forecast was minus 6) while smaller non-manufacturers expect their sentiment to slump to 7 from 14 in December (the median forecast was 9).
--Major manufacturers' sentiment posts 3rd straight rise on improved supply chains
--But outlook cautious on high costs, labor shortages
--Major non-manufacturers' confidence up for 7th straight quarter
--Many sectors expect pullback in March in payback for recent improvement
--Large firms' combined fiscal 2023 capex plans revised down only slightly; small firms raise theirs further
Confidence among manufacturers and non-manufacturers in Japan all picked up more than expected in December on improved supply chains, a bottoming chip market and easing import costs after a sharp improvement in September, but many industries are cautious about their near-term outlook amid slowing global growth and widespread domestic labor shortages, the Bank of Japan's quarterly Tankan business survey released Wednesday showed.
The Tankan diffusion index showing sentiment among major manufacturers posted its third straight quarterly increase in December, led by non-ferrous metal producers, general machinery makers and the auto industry. It climbed to 12 from 9 in September, when it rose from 5 in June and 1 in March. It was above the median forecast of 10 (forecasts ranged from 7 to 12) and compared to 14 in March 2022 and a recent peak of 18 in both December and September 2021.
Restaurants, hotels, retail stores and some other service providers continued benefiting from widely eased Covid public health restrictions, which have supported traveling and eating out as well as spending by foreign visitors, which has recovered to pre-pandemic levels.
The index measuring sentiment among major non-manufacturers marked its seventh consecutive quarterly improvement, led by real-estate firms, telecommunications service providers and the hotels/restaurants category. It rose to 30 in December from 27 in September, when it climbed to a 32-year high (the best reading since 33 in December 1991) from 23 in June. It was above the median forecast of 28 (ranging from 27 to 30) and the highest since 33 in December 1991.
Major firms projected their plans for business investment in equipment would rise a combined 13.5 percent on the year in fiscal 2023 ending in March 2024, revised down only slightly from the 13.6 percent increase planned in the September survey but still higher than a modest 3.2 percent rise planned in March. The median forecast was a 12.7 percent increase (forecasts ranged from 11.8 percent to 13.0 percent gains).
Smaller firms revised up their combined capital spending plans further to a 10.3 percent rise in fiscal 2023 after jacking them up to an 8.0 percent rise in September from a 2.4 percent increase planned in June and an unusually bullish 1.4 percent rise projected in March. It was also above than the consensus forecast of a 9.2 percent increase (ranging from 8.5 percent to 10.7 percent gains). Small businesses tend to forecast a decline at the start of the new fiscal year and revise up their plans later in the year.
Capex is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
Econoday's Relative Performance Index (RPI) stood at plus 13, above zero, which indicates the Japanese economy is performing better than expected after slightly underperforming recently. Excluding the impact of inflation, the RPI was at plus 30.
BoJ policymakers will analyze this and other pieces of data ahead of their next policy meeting on Dec. 18-19, when they are expected to leave its basic easing stance unchanged to help achieve stable 2 percent inflation with sustained wage growth while discussing whether it is necessary to tweak its yield curve control framework further and when to lift the negative short-term interest rate target.
Japan's output gap slipped back into negative territory in the third quarter after turning slightly positive in the second quarter and previously staying negative for three and a half years.
Other details from the BoJ Tankan conducted from Nov. 9 until Dec. 12.
Many firms are believed to have returned their responses by late November. By then, preliminary GDP data had been released, showing that Japan's economy posted its first contraction in three quarters in July-September, down 0.5 percent on quarter, or an annualized 2.1 percent, as private inventories plunged, net exports slipped after a sharp rebound in April-June, public works spending slowed, pent-up demand for eating out and traveling waned and firms turned cautious about capital investment. Last week the figures were revised down to 0.7% contraction (annualized 2.9%) and it is now the first contraction in four quarters due to annual revisions.
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.
Looking three months ahead, major manufacturers expect their sentiment to fall back to 8 (just below the median forecast of 9) in March from 12 in December while major non-manufacturers forecast their sentiment will slip to 24 (the median forecast was 26) after the latest improvement to 30 from 27.
Lumber and wood product makers continued to foresee a sharp decline in the March quarter while automakers and food and beverage producers expect a pullback after the recent improvement. Steel mills and pulp and paper makers also see sharp drops after modest gains. Among non-manufacturers, real-estate firms expect to give up all the gain made in December. Hotels and restaurants remain cautious about their outlook, forecasting a sharp drop in March sentiment. Electricity and gas utilities also anticipate a sharp drop after a jump in September and a modest rise in December.
The sentiment index for smaller manufacturers stood at 1 (plus 1) in December, up from -5 (minus 5) in September. It was above the median forecast of -4 (minus 4) and the first positive reading since 6 (plus 6) in the March quarter of 2019.
The index for their non-manufacturing counterparts posted the seventh consecutive improvement in December, rising to a 32-year high of 14 from 12 in September and coming in firmer than the median forecast of 12. It is the best reading since 21 in September 1991.
Smaller manufacturers expect their March sentiment index to be at -1 (minus 1), down from 1 (plus 1) in December (the median economist forecast was minus 6) while smaller non-manufacturers expect their sentiment to slump to 7 from 14 in December (the median forecast was 9).
Market Consensus Before Announcement
The Bank of Japan's quarterly Tankan business survey is forecast to show confidence among major manufacturers in Japan edged up in December on improved supply chains, a bottoming chip market and easing import costs after a sharp improvement in September, but they are expected to remain cautious about their near-term outlook amid slowing global growth and widespread domestic labor shortages.
The Tankan diffusion index showing sentiment among major manufacturers likely posted its third straight quarterly increase in December, although rising only slightly to 10 after jumping to 9 in September from 5 in June.
The index measuring sentiment among major non-manufacturers is forecast at 27 in December, unchanged from September, when it improved for the sixth consecutive quarter to a 32-year high (the best reading since 33 in December 1991).
Restaurants, hotels, retail stores and some other service providers continued benefiting from widely eased Covid public health restrictions, which have supported traveling and eating out as well as spending by foreign visitors, which has recovered to pre-pandemic levels.
Major firms are expected to project their plans for business investment in equipment will rise a combined 12.7 percent on the year in fiscal 2023 ending in March 2024, revised down from the 13.6 percent increase planned in the September survey but still higher than a modest 3.2 percent rise planned in March.
By contrast, smaller firms are expected to revise up their combined capital spending plans further to a 9.8 percent rise in fiscal 2023 after jacking them up to an 8.0 percent rise in September from a 2.4 percent increase planned in June and an unusually bullish 1.4 percent rise projected in March.
The Tankan diffusion index showing sentiment among major manufacturers likely posted its third straight quarterly increase in December, although rising only slightly to 10 after jumping to 9 in September from 5 in June.
The index measuring sentiment among major non-manufacturers is forecast at 27 in December, unchanged from September, when it improved for the sixth consecutive quarter to a 32-year high (the best reading since 33 in December 1991).
Restaurants, hotels, retail stores and some other service providers continued benefiting from widely eased Covid public health restrictions, which have supported traveling and eating out as well as spending by foreign visitors, which has recovered to pre-pandemic levels.
Major firms are expected to project their plans for business investment in equipment will rise a combined 12.7 percent on the year in fiscal 2023 ending in March 2024, revised down from the 13.6 percent increase planned in the September survey but still higher than a modest 3.2 percent rise planned in March.
By contrast, smaller firms are expected to revise up their combined capital spending plans further to a 9.8 percent rise in fiscal 2023 after jacking them up to an 8.0 percent rise in September from a 2.4 percent increase planned in June and an unusually bullish 1.4 percent rise projected in March.
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.
