The Most Comprehensive Reading of Japan’s Economy

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Japan’s Tankan survey is a popular economic survey conducted by the Bank of Japan (BOJ) in order to help formulate monetary policy. Thousands of Japanese companies are asked about current trends and business conditions in their respective industries, as well as future business projections over the next quarter and year.

Results for the Tankan surveys can be found online on the BOJ’s website.

Reading Tankan Reports

The Tankan survey begins with the survey’s sample size and breakdown. Usually, the surveys achieve a 99% response rate across about 10,700 enterprises. Those figures are further broken down into small, medium and large enterprises, as well as manufacturing and non-manufacturing enterprises, with response rates for each category.

The top of the Tankan survey also offers the average predicted exchange rate with the U.S. dollar over a two-year period. Deviations between these exchange rates and actual results can be a precursor for some monetary policy action. For example, expectations of deflation could result in the BOJ taking action to stimulate the economy via a capital injection.

The rest of the Tankan survey is broken down into several sections:

1. Business Conditions — Ratings of overall business conditions and comparisons to forecast results over the same time period.
2. Supply & Demand Conditions — Information about inventories and pricing that ranges from changes to input/output prices to domestic supply/demand .
3. Sales and Current Profits — Sales and profit data and comparisons to the forecast results over the same time period.
4. Fixed Investment — Measurement of land purchasing, software investment, production capacity investments and more.
5. Fixed Investment for Financial Institutions — Measurement of land purchasing and software investment for financial institutions.
6. Employment — Employment conditions including the total number of employees and the number of new graduates hired.
7. Corporate Finance — Measurement of the lending attitude of financial institutions, interest rates charged, ratio of liquidity and more.
8. Business Conditions of Financial Institutions — Rating for business conditions, production capacity and employment conditions in the financial industry.
9. Charts of Data — Charts showing how these measurements have changed over time, broken down by company size and forecast vs. actual result.

Putting the Tankan Survey to Use

The Tankan survey is widely regarded as one of the most important indicators of the economy’s health and is used by the BOJ to make monetary policy decisions. Investors use the survey for a variety of reasons, depending on their needs, but tend to focus on two areas the most when looking at the report for a broad reading of Japan’s economy.

For global macro investors, they key component to watch is the capital expenditures or CAPEX for all industries except the financial industry. The large manufacturers’ index references the large international companies, while the small manufacturers’ index references the domestic economy. This is important because it most accurately predicts future manufacturing activity.

The second important indicator to watch is the exchange rate projections table at the beginning of the document. Any predictions of deflation or inflation could influence monetary policy decisions that can have a profound impact on investment portfolios. For instance, lowered interest rates tend to lead to a rally in the stock market, and vice versa.

Key Points to Remember

• Japan’s Tankan survey is a popular economic survey conducted by the Bank of Japan (BOJ) in order to help formulate monetary policy.
• The survey can be found on the BOJ’s website and is available in PDF or other formats for analysis by investors.
• Investors use the survey for a variety of reasons, but should focus on the CAPEX figures and the exchange rate projections.