BOJ December 2013 Tankan Survey

◆In the BOJ December Tankan survey of corporate sentiment, business sentiment was better than the market consensus in general. A broad range of manufacturing and non-manufacturing industries saw improvement. The sentiment also improved among midsize and small companies. As a whole, the survey confirmed that the base of economic recovery is widening, a favorable result.

◆The DI of current business conditions for large manufacturers was +16 points, improving from the previous survey (+12) and overshooting the market consensus (+15). As for supply and demand conditions for products, while DIs improved for overseas and domestic conditions, those on domestic conditions marked a significant improvement, meaning firm domestic demand drove the overall business condition DI.

◆FY13 recurring profit is projected to increase 23.4% y/y (all industries, large companies). Revision rates of projections saw upgrades from the previous survey for manufacturers (to +8.6%) and non-manufacturers (to +8.1%). Breaking down the revision rates by first and second half, manufacturers and non-manufacturers saw substantial upgrades for 1H. The overshoot to industry projections led to upgrades for FY13 projections. Meanwhile, manufacturers and non-manufacturers downgraded 2H projections, exhibiting their cautious attitude going forward. However, the possibility of upgrades to 2H projections has not been ruled out, considering past patterns where companies often responded to 1H overshoots by lowering 2H projections, so that they can remain close to annual projections.

◆The FY13 capex projection (incl. investment in properties but excl. that in software; all industries, large companies) was downgraded to +4.6% y/y from the previous survey (+5.1%), undershooting the market consensus (+5.5%). This was somewhat unfavorable, considering the past patterns in December surveys. The downgrade to the manufacturing projection dragged down the overall projection, indicating that manufacturers still remain cautious on capex due to persistent lower capacity utilization rates. Even so, the current production capacity DI for manufacturers saw a minor improvement from the previous survey and the future DI is projected to improve, which is somewhat favorable.