BOJ June 2016 Tankan Survey

◆In the BOJ June Tankan survey of corporate sentiment, the current trend in business sentiment has worsened amongst small enterprises, indicating the difficulty of business conditions. Meanwhile, large enterprises in the manufacturing sector are continuing to mark time at a low level. Large enterprises in the non-manufacturing sector showed worsening business sentiment for the second consecutive quarter, revealing that corporations are cautious regarding the business environment.

◆The business conditions DI for large manufacturers was flat at +6%pt in comparison with last survey’s +6%pt, while exceeding market consensus at+4%pt. Business conditions DI for large non-manufacturing industries worsened at +19%pt in comparison to the previous survey at +22%pt, but exceeded market consensus at +18%pt. As for the future of business conditions DI, large enterprises in the manufacturing sector are expected to remain flat in comparison to the current survey at +6%pt, while large enterprises in the non-manufacturing sector are seen worsening by -2pt in comparison with the current survey at +17%pt.

◆Sales projections of large enterprises (all industries) for FY2016 fell by -0.7% y/y, with recurring profit projections down by -7.3% 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, whose recurring profit projections were revised downwards considerably by over 10% (a revision rate of -11.6%), causing much concern.

◆The FY 2016 capex projection for all enterprises in all industries (incl. investment in properties but excl. that in software; all industries, all companies) is +0.4% y/y, an upward revision from the previous report (-4.8%). Due to a statistical quirk, capex projections tend to be revised upwards on the June BOJ Tankan survey, especially in the case of small enterprises. It had been assumed that this upward revision would be smaller than the average year due to stagnant domestic and overseas demand, and the rapidly appreciating yen (the DIR outlook was -1.1% y/y), but in actual fact the upward revision on this survey was almost the same as the average year.