The survey points to steady but not accelerating business conditions, with both large manufacturers and large non-manufacturers expecting a lower reading by December than the latest one. Firms’ one-year inflation expectations edged lower but remain above the Bank of Japan’s 2% target, and input price pressure among large manufacturers eased only slightly, so the data give the Bank little reason to change its view that price risks are still to the upside. The mix of softer big-firm outlooks and pockets of strength among small manufacturers leaves room for different readings on how far tightening can go. The yen assumptions of around 154 per dollar are a useful reference for how weak a currency companies are budgeting for, which is relevant to import costs. This is one quarterly survey, so traders will still weigh it against inflation, wage and oil price data.
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Japan’s tankan shows big-firm sentiment broadly steady but slightly short of forecasts, with small firms firmer than expected and price expectations easing a notch.
Summary:
- The large manufacturers’ index rose to +24 from +22 in June, just below the +25 forecast, and firms expect +21 in December against a forecast of +22.
- The large non-manufacturers’ index fell to +35 from +37 and was just below the +36 forecast, with an outlook of +30 in line with expectations.
- Small manufacturers beat forecasts at +14 and expect +12 in December, well above the +7 forecast, while small non-manufacturers were unchanged at +15.
- Large firms plan to raise capital spending by about 11% this fiscal year, a little below forecast, while small firms plan to cut it by about 5%, in line with forecasts.
- Firms expect consumer prices to rise an average 2.6% a year from now, down from 2.7% in the previous survey, with five-year expectations at 2.5% against 2.6%.
- Firms assume the dollar will average around 154 yen and the euro around 178 yen this fiscal year.
Sentiment among Japan’s big manufacturers improved but fell a touch short of forecasts in the Bank of Japan’s September tankan survey. The large manufacturers’ index came in at +24, against a median forecast of +25 in a Reuters poll of economists, and up from +22 in June. The large non-manufacturers’ index was +35, against a forecast of +36, and down from +37 three months earlier. The indexes measure the share of firms reporting favourable conditions minus those reporting unfavourable ones. The survey covered 9,104 companies, including 1,631 large firms, between 26 August and 30 September.
Looking ahead, large manufacturers expect their index to fall to +21 in December, against a forecast of +22, while large non-manufacturers expect +30, in line with forecasts. Smaller firms were firmer than economists expected. The small manufacturers’ index rose to +14, against a forecast of +11, from +9 in June, and small manufacturers see +12 in December against a forecast of +7. Small non-manufacturers were unchanged at +15, in line with forecasts, and expect +10 in December, slightly above the forecast of +9.
Business investment plans gave a mixed picture. Large firms plan to lift capital spending by about 11% in the current fiscal year, a little below the forecast of about 12%, while small firms plan to cut spending by about 5%, in line with forecasts. Large manufacturers expect recurring profits to rise by nearly 14%.
The survey’s price expectations section showed firms expect consumer prices to rise an average 2.6% a year from now, down slightly from 2.7% in the previous survey. They expect annual increases of 2.6% three years from now, unchanged from the previous survey, and 2.5% five years from now, down from 2.6%. Among large manufacturers, the share reporting higher input prices net of those reporting lower prices eased to +59 from +62, while the output price reading held at +40.
Labour and financing conditions were little changed. The employment index for all firms was -38, compared with -37 in June, which means many more firms report a shortage of workers than a surplus. The financial conditions index for all firms was steady at +11. Large manufacturers’ production capacity index moved to -2 from zero, indicating slightly more firms reporting excess capacity than a shortage.
Firms assume the dollar will average around 154 yen and the euro around 178 yen in the current fiscal year. Large manufacturers assume around 154 yen to the dollar.
This article was written by Eamonn Sheridan at investinglive.com.