BOJ September 2014 Tankan Survey

Recovery in business sentiment falls behind; forecast cautious

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October 01, 2014

  • Satoshi Osanai

Summary

◆In the BOJ September Tankan survey of corporate sentiment, the current trend in business sentiment was especially important as a means of confirming the status of economic recovery since the downtrend which ensued after the raising of the consumption tax. Major corporations in the manufacturing industry saw modest improvement in business sentiment, but even that lacked vitality, and the situation in the non-manufacturing industries worsened considerably. Results hence seem to have reconfirmed the growing sense that economic recovery has slowed down. Recovery in consumption is sluggish, and with production also slowing down, the results of the current report are not all that surprising, but at the same time, need not be taken in a purely negative light. Still, it is significant that both major corporations and small enterprises were cautious about the future. Hence we recommend further monitoring of the situation.


◆The business conditions DI for large manufacturers (+13%pt) improved in comparison to the previous report (+12%pt), and exceeded market consensus (+10%pt). In the processing industries, automobiles improved for the first time in two months after having gone through a period of fears associated with declines in domestic sales as a result of the reactionary decline subsequent to raising the consumption tax, as well as the slowdown in exports. However, when considering the extent of the deterioration in the previous survey results, the improvement was limited. Hence continued monitoring of the situation is recommended. Meanwhile, general purpose machinery and production machinery, are maintaining their high business conditions DI with the help of firm capital investment related demand both in Japan and overseas.


◆The business conditions DI for large non-manufacturing corporations was +13%pt, showing worsened conditions in comparison to the previous survey (+19%pt). Results fell below market consensus (+17%pt). Looking at performance by industry, we see that recovery from the reactionary decline after the increase in consumption tax has been sluggish, while retail sales worsened for the second consecutive period, due partly to unseasonable weather. In the household sector, the accommodations, eating and drinking services industry was weak, as well as personal services. This suggests the necessity of exercising caution in relation to household consumption in the future.


◆Sales projections of large corporations (all industries) for FY2014 are flat in comparison to the last survey at +1.8% y/y, while projections for recurring profits were revised upwards to -3.0% y/y. Although recurring profits are expected to be down, this is thought to be due mostly to the reaction to last year’s considerable growth. Considering the fact that outlooks for recurring profits were revised upwards in both the first and second halves, these figures can be interpreted as a sign of a steady undertone.


◆The FY 2014 capex projection (incl. investment in properties but excl. that in software; all industries, large companies) was up by +8.6%y/y, and exceeded market consensus (+7.0%). A positive attitude toward capex spending has been confirmed in the manufacturing industries, which had been slow to improve until now.

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