September 2013 Tankan Survey

◆In the BOJ September Tankan survey of corporate sentiment, business sentiment improved substantially as a whole and over a broad range of industries, confirming the continuing improvement in the economy. While Prime Minister Shinzo Abe remarked that the September Tankan results would be the last cornerstone for his decision on raising the consumption tax as scheduled, the Tankan suggests an April 2014 hike is very likely.

◆The DI of current business conditions for large manufacturers was +12 points, improving substantially from the previous survey (+4) and overshooting market expectations (+7). Except for processed metal makers, DIs improved across the board, a very good result. Looking at supply-demand conditions, while DIs on overseas conditions was flat, those on domestic conditions improved, meaning firm domestic demand pushed up the overall business condition DI. As for price conditions, while output price DIs increased, input price DIs declined, leading to better terms of trade. Thus, the price conditions also contributed to improving the overall business condition DI.

◆FY13 sales are projected to increase 3.9% y/y (all industries, large companies). Both large manufacturers and non-manufacturers projected advances, up 5.0% and up 3.2%, respectively. Breaking down the manufacturers’ projection, both domestic and overseas sales are projected to advance, up 4.4% and up 6.6%, respectively. Both domestic and overseas sales drove the projection. The FY13 forex rate is projected at Y94.45/$ (large manufacturers), revised to a weaker yen from the previous survey (Y91.20/$). However, the projection is still for a stronger yen compared to the recent forex rate. Thus, there is ample space for overseas sales and recurring profits to overshoot current projections.

◆The FY13 capex projection (incl. investment in properties but excl. that in software; all industries, large companies) was downgraded to +5.1% y/y from the previous survey (+5.5%), undershooting market expectations (+6.0%). While this indicates that corporate sentiment on capex is slightly more cautious, it does not warrant an overly pessimistic view, as past patterns show that downgrades in September surveys are not unusual.