BOJ September 2016 Tankan Survey

Large enterprises continue to face uphill battle; caution urged regarding downward revision of corporate earnings

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October 03, 2016

  • Satoshi Osanai
  • Shunsuke Kobayashi

Summary

◆In the BOJ September Tankan survey of corporate sentiment, the current trend in business sentiment for large enterprises in the manufacturing sector continues to be stagnant, while business sentiment amongst large enterprises in the non-manufacturing sector is worsening, indicating that businesses continue to face an uphill battle. While capital expenditure is seen as maintaining a firm undertone despite business sentiment, we believe caution regarding downside risk associated with worsening corporate performance in the future is still to be recommended.


◆The business conditions DI for large manufacturers was flat at +6%pt in comparison with last survey’s +6%pt, falling just short of market consensus at +7%pt. Business conditions DI for large non-manufacturing industries worsened slightly at +18%pt in comparison to the previous survey at +19%pt, keeping in line with market consensus at +18%pt.


◆Sales projections of large enterprises (all industries) for FY2016 fell by -1.6% y/y, with current profit projections down by -9.2% y/y. Both sales and current 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 current profit projections were revised downwards considerably, with a revision rate of -3.3%. A further downward revision on the current survey represents a negative factor.


◆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 +1.7% y/y, an upward revision from the previous report (+0.4%). Due to a statistical quirk, capex projections tend to be revised upwards on the September BOJ Tankan survey, especially in the case of small enterprises. The upward revision on the September Tankan survey is about the same as the average year. At the same time, it should be noted that revisions for small enterprises were weak in comparison to past trends.

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