BOJ December 2016 Tankan Survey

◆In the BOJ December Tankan survey of corporate sentiment, the current trend in business sentiment for large enterprises in the manufacturing sector has notably improved after a period of weakening. On the other hand, capital expenditure remains weak. Corporate sentiment regarding the future remains cautious, but considering recent improvements in the economic and financial environments, we believe there is no need for excessive concern.

◆The BOJ December Tankan survey makes use of information collected just after the US presidential election held on November 8 when the yen experienced major depreciation in reaction to Republican Donald Trump’s win. Trump’s effect on the market may actually have been a plus to the business conditions DI of some export-driven manufacturers. However, corporations do not normally change their business plans for the fiscal year on a monthly basis, so this does not appear to have had any real effect on assumed exchange rates, profit projections or capex projections.

◆The business conditions DI for large manufacturers grew to +10%pt in comparison with last survey’s +6%pt, in agreement with market consensus at +10%pt. Business conditions DI for large non-manufacturing industries marked time at +18%pt in comparison to the previous survey at +18%pt, while falling below market consensus at +19%pt.

◆Sales projections of large enterprises (all industries) for FY2016 fell by -3.2% y/y, with current profit projections down by -11.6% y/y. Both sales and current profit projections were revised downwards due to sluggish exports and weak personal consumption.

◆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 +1.8% y/y, a slight upward revision from the previous report (+1.7%). Due to a statistical quirk, capex projections tend to be revised upwards on the December BOJ Tankan survey, especially in the case of small enterprises. However, the upward revision on the December Tankan survey is a bit on the weak side compared to the average year.