BOJ March 2017 Tankan Survey

◆In the BOJ March 2017 Tankan survey of corporate sentiment, the current trend in business sentiment for the manufacturing sector has definitely improved. Our outlook for the Japanese economy sees a gradual improvement, and the March BOJ Tankan reflects that. 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 business conditions DI for large manufacturers grew to +12%pt in comparison with last survey’s +10%pt. With overseas economies moving toward a comeback, other business factors appear to have worked positively for major Japanese manufacturers, including the yen exchange rate, which has moved in the direction of a weaker yen since November 2016, and the recent rise in energy and materials prices. However, the exchange rate entered an adjustment period early in 2017 causing a drag on corporate performance, and this led to the business conditions DI for large manufacturers to fall below market consensus (+14%pt) on the March survey.

◆Sales projections of large enterprises (all industries) for FY2017 grew by +1.4% y/y, with current profit projections down by -0.2% y/y. While sales projections were clearly positive, it is difficult for corporations to come up with a definite outlook for the next fiscal year since a large number of Japanese corporations do their yearly reporting at the end of March. This means that the BOJ March Tankan survey is published before corporations have announced their year-end financial reports, hence making the figures on the March Tankan more for referential purposes than anything else.

◆The FY 2017 capex projection for all enterprises in all industries (incl. investment in properties but excl. that in software; all industries, all companies) has grown at +0.6% y/y, exceeding market consensus (-0.2%). Meanwhile, looking at production capacity conditions DI, we see that the manufacturing industry is flat in comparison to the previous survey at +1%pt, while non-manufacturing grew just slightly at -1%pt in comparison to the previous survey (-2%pt), representing a worsening of conditions. Overall, large enterprises do not appear to be showing an increase in the sense of overcapacity.