June 2013 Tankan Survey

◆In the Bank of Japan (BOJ) June Tankan survey of corporate sentiment, business sentiment improved substantially as a whole and over a broad range of industries, confirming a turning around of the economy. While the sentiment of small manufacturers has been slow to improve, not turning around in the previous survey, it improved in the June survey. In addition, the capex projection overshot expectations. As a whole, June results were favorable.

◆The DI of current business conditions for large manufacturers was +4 points, improving substantially from the previous survey (–8) and overshooting market expectations (+3). Except for petroleum/coal product makers, DIs improved across the board, a very good result. The DI for large non-manufacturers was +12 points, improving from the previous survey (+6) and overshooting market expectations (+11). Among business-related sectors, DIs improved for transportation/postal services, information services, and business service providers, reflecting the firming up of exports and production. Among household-related sectors, the DI was firm in general—it improved for personal service providers and restaurants/accommodation, although it was flat for retailers.

◆FY13 recurring profit is projected to increase 8.4% y/y (all industries, large companies). Both manufacturers and non-manufacturers projected increases, up 14.6% and up 3.7%, respectively. The higher growth projection by manufacturers drove the overall projection. In the current survey, the FY13 forex rate is projected to be Y91.20/$ (large manufacturers), revised to a weaker yen from the previous survey (Y85.22/$). However, the projection is a stronger yen compared to the recent forex rate. Therefore, there is ample space for overseas sales and recurring profit to overshoot current projections.

◆The FY13 capex projection (incl. investment in properties but excl. that in software; all industries, large companies) was upgraded from the previous survey to +5.5% y/y. Both manufacturers and non-manufacturers project advances, up 6.7% and up 4.9%, respectively. The current production capacity DI declined (improved) by 1 point from the previous survey to +5 points (all industries, all companies) and the future DI is projected to decline (improve), centering on manufacturers, confirming that corporate sentiment regarding production capacity is gradually recovering.