Global| Dec 15 2017Japan's Tankan Improves to Tie Second Best Reading Since 2003
Summary
The bellwether in Japan's Tankan report is the performance of large manufacturing firms. Japan's large manufacturers pushed the outer edge of the envelope to score the second highest reading since the quarterly survey began in 2003 [...]
The bellwether in Japan's Tankan report is the performance of large manufacturing firms. Japan's large manufacturers pushed the outer edge of the envelope to score the second highest reading since the quarterly survey began in 2003 with a Tankan reading that rose to 25 in Q4 2017 from 22 in Q3 2017. The large MFG-Co. Tankan reading had started 2017 at a reading of 12. It has more than doubled through the course of this year.
The Tankan is a broad survey of manufacturing and nonmanufacturing that also divides these sectors into large, medium and small company cohorts. It is the large manufacturers that the Japanese look to as bellwethers. This quarter, manufacturers in each size category saw improvements. Nonmanufacturing was unchanged for larger firms but saw improvements in each of the smaller size-classes.
Among large firms in nonmanufacturing, one of eight-reporting industry classifications showed improvement to fresh all-time high readings in Q4. The nonmanufacturing sector saw declines in five of eight subsectors with improvements in the other three. Improving on the quarter were wholesaling, retailing and transportation.
The two large company sectors did so well that the total industry index reached an all-time high level in Q4 2017.
The Tankan also features a series of outlook surveys. The outlook is for the next quarter, in this case for Q1 2018. The manufacturing outlook index stays at 19 in Q1 2018, unchanged from its Q4 2017 level. The nonmanufacturing outlook index moves up to 20 from 19. With those readings, the all industry index is unchanged at 19 for Q1 2018. All of the outlook indexes have strong rankings and standings in their historic high-low ranges and as queue placements in their historic rank of values. All of these measures have standings in their 84th percentile or better on the two measures of percentile of range or percentile of rank (queue).
On balance, it is an encouraging Tankan report. The current readings are excellent and the outlook is steady at a high reading. Compared to its standing in the first quarter, the manufacturing outlook has more than doubled while the nonmanufacturing outlook has simply moved steadily higher until it plateaued in Q1 2018. The Tankan is a reading of positive reinforcement to the policies being run at the Bank of Japan. The BOJ has endured a lot of criticism for its policies, but it can look back at the evolution of the Tankan over the past several years and enjoy some measure of satisfaction from its performance.
Robert Brusca
AuthorMore in Author Profile »Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media. Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.
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