BOJ March 2018 Tankan Survey

◆In the BOJ March 2018 Tankan survey of corporate sentiment, the current trend in business sentiment for large corporations in all industries worsened somewhat, causing concern. However, looking at business conditions DI in a comprehensive manner, corporate business sentiment in Japan is generally maintaining a positive tone. We see Japan’s economy continuing moderate growth and the March BOJ Tankan survey moves along the same lines as our evaluation.

◆The business conditions DI for large manufacturers worsened at +24%pt in comparison with last survey’s +26%pt based on the new sampling method, while market consensus fell just slightly at +25%pt. This is the first time in eight quarters for large manufacturers to turn toward the negative side in business sentiment. Business conditions DI for large non-manufacturing industries also worsened at +23%pt (compared to +25%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 or research & development) is +4.0% y/y. Based on the pattern of revision in capex plans seen on a yearly basis, there is a chance that a downward revision will appear on the June survey results. However, with favorable winds provided by the high level of corporate earnings and renovation & renewal investment, firm results exceeding +3.0% y/y now appear achievable.

◆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 grow slightly in the future for manufacturing, but non-manufacturing is expected to see further declines (supply/demand will become even tighter). Both industries are expected to see a continuation of considerably negative numbers centering on small and medium-size corporations. 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.