BOJ December 2015 Tankan Survey

◆In the BOJ December Tankan survey of corporate sentiment, the current trend in business sentiment is unexpectedly marking time despite predictions that it would worsen. However, corporations have become more cautious regarding the future. Behind the sense of caution lies fears of worldwide economic slowdown centering on China, as well as worries regarding stagnant exports and production, as well as slow pace of recovery in personal consumption. Our assessment of Japan’s economy is that it is in a temporary lull, and that the December BOJ Tankan reflects this, showing the recent domestic economy to be in a temporary lull overall. As for capex, the non-manufacturing industries remain positive, while manufacturing is somewhat on the cautious side.

◆The business conditions DI for large manufacturers (+12%pt in comparison with last survey’s +12%pt) is marking time, while at the same time exceeding market consensus (+11%pt). Business conditions DI for large non-manufacturing industries also marked time (+25%pt) in comparison to the previous survey. A reactionary decline was expected for the non-manufacturing industries due to the fast pace of growth it had experienced recently, but business sentiment has retained underlying strength.

◆Sales projections of large corporations (all industries) for FY2015 are down by -1.1% y/y, with recurring profits expected to be up by +6.5% y/y. Sales are weak due to the personal consumption situation, and stagnant exports have led to a slight decline in earnings. On the other hand, recurring profits are expected to win a healthy increase due to improved margins associated with price hikes and the low price of natural resources.

◆The FY 2015 capex projection for all corporations in all industries (incl. investment in properties but excl. that in software; all industries, large companies) is +7.8% y/y, an upward revision from the previous report (+6.4%). Capital expenditure plans on the December survey reflect a certain quirk in statistics whereby upward revisions tend to occur, especially for small enterprises. As in the case of the September Tankan, upward revisions of capex projections are considerably larger than the usual pattern, especially for the non-manufacturing industries.