BOJ June 2015 Tankan Survey

◆In the BOJ June Tankan survey of corporate sentiment, the current trend in business sentiment has strengthened, especially amongst large corporations in both manufacturing and non-manufacturing. In addition, capex plans for FY2015 have been revised upwards considerably, indicating a growing corporate willingness to invest.

◆The business conditions DI for large manufacturers (+15%pt in comparison with last survey’s +12%pt) improved, while at the same time exceeding market consensus (+12%pt). While indications that exports may soon be peaking out and overall production trends cast a shadow over the business sentiments of corporate management, other factors are also present which are working in a more positive direction. These include the yen weakening further in comparison to the previous survey, as well as the continued trend toward improvement in corporate business performance, especially amongst export driven industries.

◆Business conditions DI for large non-manufacturing industries also improved at +23%pt in comparison to the previous survey (+19%pt) and exceeded market consensus (+22%pt). This represents the third consecutive quarter of improvement for business sentiment in the non-manufacturing industry. Looking at performance by industry, improvement was marked in the area of retailing and accommodations, eating & drinking services, due to improvement in sales for supermarkets and department stores brought on by growth in inbound consumption on the part of foreign tourists visiting Japan.

◆Sales projections of large corporations (all industries) for FY2015 grew +0.6% y/y, with recurring profits expected to be up by +1.1% y/y, due to economic recovery. A modest improvement, but it represents expectations of growth in both earnings and profits. The amendment ratio in comparison to the previous survey shows a downward revision for sales (-2.0%) and an upward revision for recurring profits (+3.7%).

◆The FY 2015 capex projection for large corporations in all industries (incl. investment in properties but excl. that in software; all industries, large companies) is +9.3% y/y, and exceeds market consensus considerably (+5.3%). Capital expenditure plans on the June survey reflect a certain quirk in statistics whereby upward revisions tend to occur, especially for small enterprises. Even so, upward revisions of capex projections on the current survey are considerably larger than the average year, encouraging an especially positive assessment.