BoJ Tankan Survey: expect pessimistic results

Ahead of the Bank of Japan (BoJ) Tankan Survey results released on Monday 2 April, Katsunori Kitakura, lead Strategist at SuMi TRUST, expects pessimistic results, particularly on Japanese exports, but weakness should be temporary:

“Although the Bank of Japan’s Business Sentiment Diffusion Index (DI) of large manufacturers has risen in the past five consecutive quarters, we expect that the next DI (Q1 2018) will decrease due to the effects of a stronger yen and lower share prices since the beginning of the year which have dampened sentiment among exporters. Compared to Q4 2017, we expect the Bank of Japan (BoJ) Tankan Survey results will be more pessimistic, particularly in export industries.

“There is a high possibility that the export industry will deteriorate significantly in the Q1 2018 Tankan Survey figures due to the appreciation of JPY and the weak stock market. However, we believe strong domestic demand will support the service industry and the overall negative impact will be minor.

“Business sentiment among exporters (notably machinery and electrical machinery) should weaken as a rebound from the strong number recorded in 2017. However, the auto sector should not bear the same fate supported by growth in the US and Europe. The service sector has been supported by healthy domestic demand which should mitigate any negative effects, in particular in the land transport and postal services. This is due to higher prices for home delivery services and strong demand for movers, as reported in the media.

“Looking forward, we do not see a deterioration in the BoJ Tankan Survey figures as we have not had excessive capital spending or inventory accumulation. Moreover, while the industrial component of the Coincident Indicator – which shows its state of economic activity – reveals signs of weakness, we believe that this is temporary and should recover so long as the global economy stays healthy. Business sentiment may see some downward pressure until Q2 2018, but should recover towards year-end. Thus we do not expect that Governor Kuroda will implement further monetary easing policies.”