BOJ September 2017 Tankan Survey

◆In the BOJ September 2017 Tankan survey of corporate sentiment, the current trend in business sentiment in all industries was mixed. However, looking at business conditions DI in a comprehensive manner, corporate business sentiment in Japan continues to be positive. Especially notable is a step up in improvement of business sentiment in the manufacturing industry supported by the weak yen and improvement in exports. Meanwhile, considering the period covered by this survey (August 29 – September 29) the recent dissolution of the House of Representatives is seen as having no effect on the results of the September BOJ Tankan survey.

◆The business conditions DI for large manufacturers grew to +22%pt in comparison with last survey’s +17%pt, while at the same time exceeding market consensus considerably at +18%pt. Overseas economies continue to recover, and the positive effects of a weaker yen, especially in relation to the Euro, has been a positive factor, bringing the fourth consecutive quarter of improvement. Business conditions DI for large non-manufacturing industries marked time at +23%pt (also +23%pt on the previous survey). Market consensus was also +23%pt.

◆The FY 2017 capex projection for all enterprises in all industries (incl. investment in properties but excl. that in software) is +4.6% y/y, exceeding market consensus (+4.3%). Looking at the performance of large enterprises by industry, we see that capex projections of manufacturers for FY2017 are up by +14.1%, while large enterprises in non-manufacturing are at +4.0%. This is more or less along the lines of past revisions.

◆Employment conditions DI for corporations of all sizes in both manufacturing and non-manufacturing declined (supply/demand becoming tighter). The sense of a shortage of manpower is increasing amongst corporations. Employment conditions DI are expected to decline further in the future for both manufacturing and non-manufacturing centering on small and medium-size corporations, with the condition of the labor market expected to become increasingly tight. Some industries are seen as facing difficulties in acquiring the employees they need in the near future. These industries will likely be required to improve conditions for their employees, either in the form of accepting more as regular employees or by increasing wages. This will require investment in acquiring personnel as well as investment in labor-saving systems. Improving productivity will continue to be important in the future.