Japan's MOF Business Outlook Survey

Japan’s Ministry of Finance (MOF) business outlook survey for Q1 2023 showed a relatively sharp drop to -3 for all enterprises from +0.7 in the fourth quarter. The bellwether manufacturing index fell to -10.5 in Q1 2023 from -3.6 in the fourth quarter, while the nonmanufacturing index dropped to 0.6 from 2.7 in the fourth quarter.

For medium-sized companies, the manufacturing index plunged to a reading of -17.2 in Q1 2023 from -3.9 in the fourth quarter. For small enterprises, the manufacturing index plummeted to -23.9 in the first quarter from -4.2 in the fourth quarter.

The assessments of activity for enterprises of all sizes were cut back and cut back relatively sharply. The biggest declines were among the medium and small-sized enterprises in manufacturing.

The changes for the quarter-ahead also revealed losses that were relatively sharp although they were better balanced across enterprises of different sizes. For one quarter-ahead, large enterprise manufacturers cut their outlook by 13 points, medium sized enterprises cut their outlook by 13.3 points while small enterprises in manufacturing cut their outlook by 10.4 points. Nonmanufacturing enterprises cut their outlook for the quarter-ahead by 2.7 points for large enterprises, by 4-points for medium-sized enterprises, and by 1.4 points for small enterprises.

Looking ahead by two quarters, we continue to see reductions in the outlook compared to the outlook that was made one quarter ago. And here the outlooks are once again progressive with the smaller firms cutting their outlooks more. Manufacturing large enterprises cut their outlook two quarters ahead by 4.8 points compared to a reduction of -7.9 points from medium-sized enterprises and a cut of -9.4 points for small enterprises. For nonmanufacturers, large enterprises cut their outlook by -0.3 points, a medium-sized enterprises cut theirs by -3.4 points and small enterprises cut theirs by -5.4 points.

Absolute assessments I also construct ranking statistics in the table to compare the standings of establishments of different sizes, and also to facilitate comparison between current, quarter-ahead and two quarter-ahead assessments. Among all enterprises in the current quarter the assessment stands at its 27th percentile, below the 29.7 percentile standing for the quarter-ahead and the 33.8 percentile standing for two quarters ahead. Large enterprises in manufacturing have only a 13.5 percentile standing, the quarter ahead standing is worse at the 11th percentile while the two-quarter ahead assessment has a 27th percentile standing. Nonmanufacturers that are large enterprises have a 41.9 percentile standing compared to a 29.7 percentile standing for the quarter-ahead and a 47.3 percentile standing for two quarters ahead. The rule we find here is that the two quarter-ahead standing is generally better than the current quarter standing for large and medium enterprises; however, for small enterprises the two-quarter ahead standing is lower than the current quarter standing; that could be because the current quarter standing for smaller enterprises is a relatively stronger standing than the current quarter metrics for large enterprises.

In general, this MOF survey is not encouraging. The changes are negative. They are negative for the current quarter, for the quarter ahead and for two quarters ahead. And the standings for the various assessments are low, below their 50th percentile for all these metrics telling us that all of them have a standing below their historic median values. Japan on its current standing continues to be weak. Any expectations for the future show conditions are projected to remain weak depending on the size of the establishment. The weakness is expected to remain well below historic medians and in many cases to get worse.