2 Jul 2015
BoJ Tankan bodes well for Japan’s economic growth – Nomura
FXStreet (Barcelona) - Tomo Kinoshita, Economist at Nomura, reviews the BoJ Tankan Survey, noting that the improvement in sentiment and upward revision in capex suggests Japan’s economy is on a recovery path.
Key Quotes
“The BOJ Tankan survey (June) showed a reading of +23 for the business conditions DI for large nonmanufacturers, ahead of the consensus forecast (Bloomberg survey median) of +22 and a significant improvement over the March survey of +19. It seems likely that companies are gearing up to meet demand amid growing expectations of a recovery in consumer spending supported by rises in base pay and summer bonuses.”
“We also think sustained growth in inbound demand has contributed to the improvement in sentiment among nonmanufacturers.”
“The most recent business conditions DI for large manufacturers was +15, above the consensus forecast of +12. This marks a level up from the narrow range (from +12 to +13) the DI had been in since June 2014. The business conditions DI for large manufacturers improved despite a contraction in both real exports and industrial production in Apr-May from the Jan-Mar average. We attribute this to (1) a change in forex assumptions toward a weaker yen, and (2) the likely completion of inventory adjustments of consumer goods.”
“The bullishness in corporations’ fixed investment plans was also striking. FY15 capex plans for all enterprises, all industries (including land purchasing expenses, excluding software investment) see capex rising 3.4% y-y, a sharp upward revision from the downbeat reading of -5.0 in March.”
“In the recent survey, FY15 capex plans (all industries, large enterprises) call for a 9.3% y-y increase, ahead of the consensus forecast for a rise of 5.3%. This is even higher than our fairly bullish forecast for a rise of 8.3%. Capex plans for large manufacturers were revised up to +18.7% y-y. With the weak yen boosting their earnings power, we think this is an indication large manufacturers intend not only to upgrade existing facilities but add capacity in anticipation of higher demand in future. The capex plans of large nonmanufacturers were also revised up, to +4.7% y-y from -4.1% in March.”
“Overall, we think the latest Tankan confirms that the Japanese economy is on a recovery path.”
Key Quotes
“The BOJ Tankan survey (June) showed a reading of +23 for the business conditions DI for large nonmanufacturers, ahead of the consensus forecast (Bloomberg survey median) of +22 and a significant improvement over the March survey of +19. It seems likely that companies are gearing up to meet demand amid growing expectations of a recovery in consumer spending supported by rises in base pay and summer bonuses.”
“We also think sustained growth in inbound demand has contributed to the improvement in sentiment among nonmanufacturers.”
“The most recent business conditions DI for large manufacturers was +15, above the consensus forecast of +12. This marks a level up from the narrow range (from +12 to +13) the DI had been in since June 2014. The business conditions DI for large manufacturers improved despite a contraction in both real exports and industrial production in Apr-May from the Jan-Mar average. We attribute this to (1) a change in forex assumptions toward a weaker yen, and (2) the likely completion of inventory adjustments of consumer goods.”
“The bullishness in corporations’ fixed investment plans was also striking. FY15 capex plans for all enterprises, all industries (including land purchasing expenses, excluding software investment) see capex rising 3.4% y-y, a sharp upward revision from the downbeat reading of -5.0 in March.”
“In the recent survey, FY15 capex plans (all industries, large enterprises) call for a 9.3% y-y increase, ahead of the consensus forecast for a rise of 5.3%. This is even higher than our fairly bullish forecast for a rise of 8.3%. Capex plans for large manufacturers were revised up to +18.7% y-y. With the weak yen boosting their earnings power, we think this is an indication large manufacturers intend not only to upgrade existing facilities but add capacity in anticipation of higher demand in future. The capex plans of large nonmanufacturers were also revised up, to +4.7% y-y from -4.1% in March.”
“Overall, we think the latest Tankan confirms that the Japanese economy is on a recovery path.”