BOJ March 2016 Tankan Survey

◆In the BOJ March Tankan survey of corporate sentiment, the current trend in business sentiment has worsened considerably amongst large enterprises in both the manufacturing and non-manufacturing sectors. The survey also reveals that corporations have become more cautious regarding the future. Sluggish exports and production due to the slowdown in overseas economies are behind this development, as well as the appreciation of the yen since the end of last year and weak personal consumption.

◆The business conditions DI for large enterprises worsened considerably at +6%pt in comparison to last survey’s +12%pt, while at the same time falling below market consensus (+8%pt). The business conditions DI for large enterprises in the non-manufacturing sector worsened at +22%pt as compared to last survey’s +25%pt, while at the same time falling somewhat below market consensus (+23%pt). At the same time, however, large enterprises in the non-manufacturing sector exhibited a faster pace of improvement than seen in the past giving a strong sense that adjustment is progressing. Hence the opinion is that these results should not be taken overly pessimistically in consideration of DI levels.

◆Sales projections of large enterprises (all industries) for FY2015 fell by -1.6% y/y, with recurring profit projections up by +3.9% y/y. Both sales and recurring profit projections were revised downwards due to sluggish exports and weak personal consumption. This was especially notable for large enterprises in the manufacturing sector, which until now had been expecting earnings growth, making the downward revision in recurring profit projections especially large. The fact that many manufacturers now expect a decrease in earnings brings a note of caution. Sales projections of large enterprises (all industries) for FY2016 are also down by -0.4% y/y, with recurring profit projections down by -2.0% y/y. Declines in both earnings and recurring profits are seen. At the same time, considering past revisions, these projections seem to be somewhat on the weak side.

◆The FY 2015 capex projection for enterprises of all sizes and all industries (incl. investment in properties but excl. that in software; all industries, large companies) is +8.0% y/y, a slight upward revision from the previous report (+7.8%). These results are considered to be on the high side considering past revisions. Meanwhile, the FY 2016 capex projection for enterprises of all sizes and all industries (incl. investment in properties but excl. that in software; all industries, large companies) is down by -4.8% y/y, falling below market consensus at -4.6%. However, capex projections on the current survey are about the same as they have been on average for recent years, hence there should be no cause for pessimism.