BOJ June 2023 Tankan Survey

◆The results of the BOJ June 2023 Tankan survey of corporate sentiment were as follows: business conditions DI (actual result) for large manufacturers were at +5%pt (+4%pt in comparison with the previous survey), while large non-manufacturers were at +23%pt (+3%pt in comparison with the previous survey).

◆Looking at the breakdown of large manufacturers, the basic materials industries saw a rise in business conditions DI (actual result) in a broad range of industries. Shifting our view to the processing industries, we see that there was an increase in business conditions DI (actual result) for food & beverages (+17%pt in comparison with the previous survey). While the price of raw materials soars, price pass-through is progressing, bringing improvements to profitability, which is believed to be behind these results. As for large non-manufacturers, business conditions DI (actual result) also rose for accommodations, eating & drinking services (+36%pt) and services for individuals (+4%pt).

◆Looking at the difference between output price DI (actual result) and input price DI (actual result), both large manufacturers and large non-manufacturers improved their profitability. It appears that progress is being made in price pass-through in response to the rapid cost increases. As for the forecast, large manufacturers expect continued improvements. Price pass-through is expected to continue even as the input price DI declines by limiting the extent to which sales price declines. On the other hand, there are signs that the difference between output price DI (forecast) and input price DI (forecast) may worsen in the future for non-manufacturers. It should therefore be noted that price pass-through could weaken in the future for them.

◆The FY2023 capex projection for all enterprises in all industries (including investment in properties, but not investment in software or research & development) is +11.8% y/y. Looking at the projection by industry for enterprises of all sizes, manufacturers were at +15.1%, with non-manufacturers at +9.9%. The June survey showed a relatively high growth rate for this time of year with solid results. As a whole, the survey indicates a growing appetite for capital investment in response to the shift to green technologies and efforts towards digitalization.