How to Find and Read Japan's Tankan Survey
A Look at the Most Comprehensive Reading of Japan's Economy
Japan's Tankan survey is a popular economic survey conducted by the Bank of Japan (BOJ) in order to help formulate monetary policy. As a part of the economic survey, thousands of Japanese companies are asked about current trends and business conditions within their respective industries, as well as future business projections over the next quarter and year.
In many ways, the Tankan survey is similar to the U.S. Federal Reserve's Beige Book, which surveys many different areas of the market to form an opinion.
The Tankan survey provide key insights into Japan's economic growth potential and enables investors to gauge the likelihood or interest rate changes or other monetary policy actions that can affect their investment portfolios.
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 survey achieves 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 responses from 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:
- Business Conditions - Ratings of overall business conditions and comparisons to forecast results over the same time period.
- Supply & Demand Conditions - Information about inventories and pricing that ranges from changes to input/output prices to domestic supply/demand.
- Sales and Current Profits - Sales and profit data and comparisons to the forecast results over the same time period.
- Fixed Investment - Measurement of land purchasing, software investment, production capacity investments and more.
- Fixed Investment for Financial Institutions - Measurement of land purchasing and software investment for financial institutions.
- Employment - Employment conditions including the total number of employees and the number of new graduates hired.
- Corporate Finance - Measurement of the lending attitude of financial institutions, interest rates charged, ratio of liquidity and more.
- Business Conditions of Financial Institutions - Rating for business conditions, production capacity and employment conditions in the financial industry.
- 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.
First, global macro investors tend to watch 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.
Secondly, the exchange rate projections table at the beginning of the document provides some key insights into monetary policy decisions. 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.