BOJ March 2015 Tankan Survey

◆In the BOJ March Tankan survey of corporate sentiment, the current trend in business sentiment has improved overall in comparison to the previous survey when it was marking time. Factors behind the improvement include moderate growth in personal consumption following a period of decline after the April 2014 increase in consumption tax. As for the future, corporations of all sizes reported forecasts worsening, and all reported being cautious as regards the future business environment. At the same time, it should be noted that the sampling of corporations surveyed was changed in the current report.

◆The business conditions DI for large manufacturers (+12%pt, based on new sample) was the same as on the previous report, and fell below market consensus (+14%pt). Exports are now in a growth trend due to the recovery of the US economy, while the yen has weakened progressively since the end of October when the BOJ announced its decision to implement additional monetary easing measures. Expectations were that this would push up the business conditions DI for large manufacturers, but the effect was fairly limited.

◆Business conditions DI for large non-manufacturing industries improved at +19%pt in comparison to the previous survey’s (+17%pt) and exceeded market consensus (+17%pt). In performance by industry, we see an improvement in business conditions for the retailing and personal services due to moderate growth in personal consumption which had experienced a downtrend after the increase in consumption tax in April 2014, as well as an increase in consumption associated with inbound tourist traffic.

◆Sales projections of large corporations (all industries) for FY2015 see an improvement of +0.7% y/y, with recurring profits expected up by +0.6% y/y. A modest improvement, but it represents growth in both earnings and profits. The projection for recurring profits on the March 2014 survey indicated a decline in earnings due to the effects of the increase in consumption tax. However, the current projection is for an increase in earnings due to the economy’s recovery.

◆The FY 2015 capex projection large corporations in all industries (incl. investment in properties but excl. that in software; all industries, large companies) is -1.2% y/y, and falls below market consensus (+0.5%). However, the March survey reflects a certain quirk in statistics due to the tendency of corporations to be conservative regarding capex projections for the following year. Considering this tendency, current capex projections are actually about the same as in most years, and should not be taken in the negative sense.