| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Large Manufacturer Sentiment Index | 12 | 9 to 13 | 13 | 11 |
| Large Non-Manufacturer Sentiment Index | 33 | 32 to 36 | 33 | 34 |
| Small Manufacturer Sentiment Index | -1 | -5 to 2 | -1 | -1 |
| Small Non-Manufacturer Sentiment Index | 12 | 10 to 16 | 12 | 13 |
| Large Firms Capital Expenditure Plans | 14.2% | 8.0% to 16.3% | 11.1% | 4.0% |
| Small Firms Capital Expenditure Plans | 0.6% | -4.5% to 4.4% | -0.8% | -3.6% |
Highlights
The Bank of Japan's quarterly Tankan business survey showed confidence among manufacturers improved slightly or was flat in the June quarter, as the positive effects of resumed vehicle output in March after two months of suspension over safety issue were partially offset by concerns over rising costs. Sentiment among non-manufacturers edged down after recent improvement as post-Covid spending and traveling has waned further.
The Tankan diffusion index showing sentiment among major manufacturers rose to 13 from 11 in March, when it posted its first drop in four quarters. The increase, led by producers of textiles, refined petroleum products and general machinery, matched 13 in December, which was the highest since 14 in March 2022 but below the recent peak of 18 seen in both December and September 2021. It was just above the median forecast of 12 (forecasts ranged from 9 to 13).
The index measuring sentiment among major non-manufacturers stood at 33, down slightly from a fresh 32-year high of 34 recorded in March, which was the best reading since 41 in September 1991 and the eighth straight quarterly increase. It was in line with the median forecast of 33 (ranging from 32 to 36). Declines in retailers, hotels and restaurants were largely offset by telecommunications.
The sentiment index for smaller manufacturers was at minus 1 in June, unchanged from March, when it fell to the level from 2 in December, which was the first positive reading since 6 in the March quarter of 2019. The median forecast was minus 1, with forecasts ranging widely from minus 5 to plus 2. Weakness in non-ferrous metals and refineries over rising costs was offset by gains in business machinery and lumber.
The index for their non-manufacturing counterparts slipped further to 12 after posting its first dip in eight quarters in March, easing to 13 from 14 in December. December's 14 was the best reading since 21 in September 1991. It was in line with the consensus call of 12 (forecasts ranged from 10 to 16). Better sentiment among telecoms and utilities was offset by slightly less optimitsic views among hotels, restaurants and retailers amid labor shortages.
Major firms projected their plans for business investment in equipment would rise a combined 11.1 percent on the year in fiscal 2024 ending on March 31, 2025, up sharply from a 4.0 percent increase planned in March amid widespread labor shortages and the need to digitize their operations. It was below the median forecast of a 14.2 percent increase (forecasts ranged from 8.0 percent to 16.3 percent gains).
Smaller firms also raised their combined capital spending plans to a 0.8 percent decrease in fiscal 2024 after projecting a sharper 3.6 percent drop in March. It was lower than the consensus call of a slight 0.6 percent increase, with forecasts ranging from a 4.5 percent drop to a 4.4 percent gain. Smaller firms tend to have conservative plans at the start of each fiscal year and revise them up later. Capex plans are 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) stands at plus 16, above zero, which indicates the Japanese economy is performing slightly better than expected. Excluding the impact of inflation, the RPI is at plus 28.
BoJ policymakers will analyze this and other pieces of data ahead of their next policy meeting on July 30-31, when the board will update their medium-term growth and inflation forecasts. It will also provide specific plans on how the bank should reduce purchases of Japanese government bonds as part of its process to normalize policy and revive market functions. Some market participants expect the BoJ to raise the overnight rate again in July or September, and possibly one more time by year-end or early next year, but the outlook for a steady increase in service prices, the key to anchoring inflation around the bank's 2 percent target, remains uncertain as regulated wages for medical, welfare workers and educators have been kept low.
The Tankan diffusion index showing sentiment among major manufacturers rose to 13 from 11 in March, when it posted its first drop in four quarters. The increase, led by producers of textiles, refined petroleum products and general machinery, matched 13 in December, which was the highest since 14 in March 2022 but below the recent peak of 18 seen in both December and September 2021. It was just above the median forecast of 12 (forecasts ranged from 9 to 13).
The index measuring sentiment among major non-manufacturers stood at 33, down slightly from a fresh 32-year high of 34 recorded in March, which was the best reading since 41 in September 1991 and the eighth straight quarterly increase. It was in line with the median forecast of 33 (ranging from 32 to 36). Declines in retailers, hotels and restaurants were largely offset by telecommunications.
The sentiment index for smaller manufacturers was at minus 1 in June, unchanged from March, when it fell to the level from 2 in December, which was the first positive reading since 6 in the March quarter of 2019. The median forecast was minus 1, with forecasts ranging widely from minus 5 to plus 2. Weakness in non-ferrous metals and refineries over rising costs was offset by gains in business machinery and lumber.
The index for their non-manufacturing counterparts slipped further to 12 after posting its first dip in eight quarters in March, easing to 13 from 14 in December. December's 14 was the best reading since 21 in September 1991. It was in line with the consensus call of 12 (forecasts ranged from 10 to 16). Better sentiment among telecoms and utilities was offset by slightly less optimitsic views among hotels, restaurants and retailers amid labor shortages.
Major firms projected their plans for business investment in equipment would rise a combined 11.1 percent on the year in fiscal 2024 ending on March 31, 2025, up sharply from a 4.0 percent increase planned in March amid widespread labor shortages and the need to digitize their operations. It was below the median forecast of a 14.2 percent increase (forecasts ranged from 8.0 percent to 16.3 percent gains).
Smaller firms also raised their combined capital spending plans to a 0.8 percent decrease in fiscal 2024 after projecting a sharper 3.6 percent drop in March. It was lower than the consensus call of a slight 0.6 percent increase, with forecasts ranging from a 4.5 percent drop to a 4.4 percent gain. Smaller firms tend to have conservative plans at the start of each fiscal year and revise them up later. Capex plans are 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) stands at plus 16, above zero, which indicates the Japanese economy is performing slightly better than expected. Excluding the impact of inflation, the RPI is at plus 28.
BoJ policymakers will analyze this and other pieces of data ahead of their next policy meeting on July 30-31, when the board will update their medium-term growth and inflation forecasts. It will also provide specific plans on how the bank should reduce purchases of Japanese government bonds as part of its process to normalize policy and revive market functions. Some market participants expect the BoJ to raise the overnight rate again in July or September, and possibly one more time by year-end or early next year, but the outlook for a steady increase in service prices, the key to anchoring inflation around the bank's 2 percent target, remains uncertain as regulated wages for medical, welfare workers and educators have been kept low.
Market Consensus Before Announcement
The Bank of Japan's quarterly Tankan business survey is forecast to show confidence among manufacturers improved only slightly or was flat in the June quarter, as the positive effects of resumed vehicle output in March after two months of suspension over safety issues may be offset by concerns over high costs, while sentiment among non-manufacturers is expected to edge down after recent improvement as post-Covid spending and traveling has waned.
The Tankan diffusion index showing sentiment among major manufacturers is forecast at 12, up slightly from 11 in March, when it posted its first drop in four quarters, sliding back from 13 in December, which was the highest since 14 in March 2022 but below the recent peak of 18 seen in both December and September 2021. The index measuring sentiment among major non-manufacturers is seen at 33, down slightly from a fresh 32-year high of 34 recorded in March, which was the best reading since 41 in September 1991 and the eighth straight quarterly increase.
The sentiment index for smaller manufacturers is forecast at minus 1 in June, unchanged from March, when it fell to minus 1 from 2 in December, which was the first positive reading since 6 in the March quarter of 2019. The index for their non-manufacturing counterparts is expected to slip further to 12 after posting its first dip in eight quarters in March, easing to 13 from 14 in December. December's 14 is the best reading since 21 in September 1991.
Major firms are expected to project their plans for business investment in equipment would rise a combined 14.2 percent on the year in fiscal 2024 ending on March 31, 2025, up sharply from a 4.0 percent increase planned in March amid widespread labor shortages and the need to digitize their operations. Smaller firms are also expected to raise their combined capital spending plans to a 0.6 percent increase in fiscal 2024 after projecting a 3.6 percent drop in March. Smaller firms tend to have conservative plans at the start of each fiscal year and revise them up later.
The Tankan diffusion index showing sentiment among major manufacturers is forecast at 12, up slightly from 11 in March, when it posted its first drop in four quarters, sliding back from 13 in December, which was the highest since 14 in March 2022 but below the recent peak of 18 seen in both December and September 2021. The index measuring sentiment among major non-manufacturers is seen at 33, down slightly from a fresh 32-year high of 34 recorded in March, which was the best reading since 41 in September 1991 and the eighth straight quarterly increase.
The sentiment index for smaller manufacturers is forecast at minus 1 in June, unchanged from March, when it fell to minus 1 from 2 in December, which was the first positive reading since 6 in the March quarter of 2019. The index for their non-manufacturing counterparts is expected to slip further to 12 after posting its first dip in eight quarters in March, easing to 13 from 14 in December. December's 14 is the best reading since 21 in September 1991.
Major firms are expected to project their plans for business investment in equipment would rise a combined 14.2 percent on the year in fiscal 2024 ending on March 31, 2025, up sharply from a 4.0 percent increase planned in March amid widespread labor shortages and the need to digitize their operations. Smaller firms are also expected to raise their combined capital spending plans to a 0.6 percent increase in fiscal 2024 after projecting a 3.6 percent drop in March. Smaller firms tend to have conservative plans at the start of each fiscal year and revise them up later.
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.
