BOJ December 2017 Tankan Survey

◆In the BOJ December 2017 Tankan survey of corporate sentiment, the current trend in business sentiment for large corporations in all industries was mixed for both the manufacturing and non-manufacturing industries. 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. We see Japan’s economy continuing moderate growth and the December BOJ Tankan survey moves along the same lines as our evaluation.

◆The business conditions DI for large manufacturers grew to +25%pt in comparison with last survey’s +22%pt, while at the same time exceeding market consensus at +24%pt. Overseas economies continue to recover, and the positive effects of a weaker yen have brought continued growth in exports and production, bringing the fifth consecutive quarter of improvement. Business conditions DI for large non-manufacturing industries marked time at +23%pt (also +23%pt on the previous survey). Performance dropped slightly below market consensus at +24%pt.

◆The FY 2017 capex projection for all enterprises in all industries (incl. investment in properties, but not investment in software and research & development) is +6.3% y/y, exceeding market consensus (+5.5%). Looking at the performance of large enterprises by industry, we see that capex projections of manufacturers for FY2017 are up by +10.2%, while large enterprises in non-manufacturing are at +5.8%. 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. Although the tight labor market is a reflection of a good economy, the other side of this situation is that some industries are seen facing difficulties in acquiring the employees they need in the near future. Constraints in the supply of labor may become a drag on economic recovery in the future.