September 2012 Tankan Survey

◆Treading water confirmed: In the BOJ September Tankan survey of corporate sentiment, the business sentiment of large manufacturers worsened for the first time in three quarters, confirming that the economy began stagnating. However, the degree of aggravation was not worse than market expectations and thus the September survey does not warrant an overly pessimistic view. Indeed, BOJ softened its view on the economy following the September monetary policy meeting, but did not hint at any further downgrade. Thus, we believe BOJ’s view on the economy will have a limited impact on monetary policy. The impact of anti-Japan demonstrations in China is unlikely to have been reflected in the September survey given the early deadline for replies.

◆Current DI for large manufacturers saw first decline in three quarters: The current business condition DI for large manufacturers was -3 points, worsening from the previous survey (-1) but slightly better than the market consensus (-4). The current DI for supply and demand conditions for products worsened for both overseas and domestic markets, pulling down the business condition DI.

◆Capex projection firm: The FY12 capex projection (incl. investment in properties but excl. that in software; all industries, large companies) was +6.4% y/y (revision rate from previous survey: +0.2%), better than the market consensus of +5.0% y/y. While manufacturers saw a downgrade from the previous survey, the upgrade for non-manufacturers pushed up the overall capex projection. Despite concerns over a downswing in capex due to persistent deceleration in exports and production, the capex projection was firm.