BOJ Tankan: Large manufacturers’ DI improves to 24, below expectations

According to the BOJ's September Tankan survey, the DI for large manufacturers improved 2 points from the previous survey in June to 24. The market forecast was 25, but the index improved for the third consecutive quarter, indicating resilience in business sentiment. Meanwhile, the DI for large non-manufacturers was 35, down 2 points from 37 in the previous survey. It was also below the market forecast of 36, as labor shortages and higher costs, particularly in the services sector, heightened concerns.

The December outlook is for manufacturing to deteriorate from the current level to 21 and non-manufacturing to 30. While manufacturing is expected to deteriorate, non-manufacturing is expected to remain at a relatively high level, although views on business conditions toward year-end have become more cautious.

Capital investment plans for all large companies and industries were revised slightly downward to an 11.3% increase year on year, from the previous survey's 11.5% increase. Although the figure fell short of the market forecast of a 12.3% increase, growth is still expected to remain in double digits.

The detailed Tankan results released for the September survey showed manufacturing DI at 24, non-manufacturing DI at 35, the December manufacturing outlook at 21, the December non-manufacturing outlook at 30, and capital investment plans at 11.3%. The gap between the DIs suggests a divergence in business sentiment, with a recovery in manufacturing and cost pressures in non-manufacturing being discussed at the same time.

The BOJ recently decided at its Monetary Policy Meeting to leave its policy rate unchanged, making this Tankan survey an important economic indicator for assessing future rate-hike decisions. The fact that capital investment plans fell below forecasts may be interpreted as evidence of a cautious corporate stance.