Macro Monday 42 ~ Japan Business Sentiment (ReutersTankanIndex)

14 апр.

Macro Monday 42

Japan Reuters Tankan Index – Business Sentiment
(Released this Wednesday 17th April 2024)

Firstly lets briefly cover the Japan Consumer Sentiment we covered last week,

Japan Consumer Sentiment
Last week we covered the Japan Consumer Confidence Index (CCI), which provided a great indication of how the Japanese consumer is feeling. The Japan CCI surveys have a reliable 90.6% response rate from c. 8,400 households. The Japan CCI came in at 39.5 for March last week which was the highest reading in 5 years and demonstrates a trending recovery from lows of 28.6 in Nov 2022.

Any figure below 50 on the Japan CCI is pessimistic however historically the index has only ever rose above 50 briefly twice. We discussed how this is due to many factors such as the Japanese being conservative and risk averse. To remedy this and help find a threshold, I used the historical average level of 40.86 as an indicator of above average historical consumer sentiment (however still pessimistic). If we break above the 40.86 level in coming months this would be a good signal of improving sentiment, essentially that the Japanese consumer is less pessimistic than on average, however still pessimistic.

Japan Business Sentiment
This week we are looking at the Japan Reuters Tankan Index (RTI) which is essentially Japan’s Business Sentiment Indicator.

Why is Business Sentiment in Japan an important macro-economic metric to observe?

1.Japan’s manufacturing output for 2021 was valued at $1.025 trillion USD, making it one of the world’s largest manufacturers. The country is known for its high-quality production in areas such as automobiles, electronics, and robotics

2.Japan contributes c.7.2% towards the world’s total manufacturing output, showcasing its critical role in the global supply chain and its influence on international trade.

3.Japan makes up 8% of total global GDP, despite having only 1.8% of the world’s population.

4.Japan is the third largest economy in the world after the US and China

Now that we understand that Japan is one of the major manufacturing and economic hubs of the world, lets now try to understand how optimistic or pessimistic Japan businesses are feeling at present.

The Japan RTI is collated from data from major leading Japanese companies. 200 manufacturers and 200 non-manufactures advise of improving (above 0) or worsening conditions (below 0). For reference the 200 non-manufacturing companies include the likes of services, retail, finance, and real estate.

The Chart

You will see, as outlined on the chart, that the Japan RTI is made up of 4 sub categories:

1. Business Conditions (current)
2. Business Outlook (future quarter)
3. Large manufacturing outlook
4. Non-manufacturing sector

These subcategories can help in understanding the nuances of sentiment in Japan among different sectors and are crucial for a comprehensive analysis of Japan’s business environment. We might cover these individually when the data is released this Wednesday. I am particularly interested in the future quarter business outlook.

Reading the chart
Above 0 = Business Optimism
Below 0 = Business Pessimism
0 = Neutral

The Japan RTI Business sentiment is currently above 0, firmly in the optimistic zone at 10.

You can see that we have been rejected from the 12 – 13 level three times since 2022 (Aug 2022, Aug 2023 & Dec 2023). If we break above this level it will be the first time in over 2 years that Japan Business sentiment reached this high. Expectations for the coming release this Wednesday are for a reduction to 9. So expectations are low for this weeks release.

Japan Consumer Sentiment has risen from a major low that was established in Nov 2022 and has since been on a significant up trend moving from 28.6 to 39.5. Whilst still in the pessimistic zone the consumer index moves closer towards the historical sentiment average of 40.86.

The Japan RTI Business Sentiment appears to have followed suit rising from a low in Jan 2023 a few months later and is now reaching for recent highs of 12 (current reading of 10 with 9 anticipated this week)

Both the Japan Consumer Sentiment Index and the Japan RFI Business Sentiment Index are trending towards higher optimism (or less pessimism) but have a bit more work to do to offer some confirmatory action.

We will look at the Japan Flash Composite PMI next week which is released Tuesday 23rd April 2024. This will help add perspective in the form of manufacturing/services data directly relating to New Orders, Output, Employment, Deliveries and Stock.

In between now and then I will update the above Japan RTI Business sentiment index this Wednesday and update you on Japan CPI which is released this Friday also (something to watch out for).

We will gradually get familiar the macro-economic data that matters across the globe here on Macro Mondays.

Again, all these charts are available on my Tradingview Page and you can go to them at any stage over the next 5 - 10 years press play and you'll get the chart updated with the easy visual guide I provided. I hope its helpful

Thanks for coming along.

PUKA

17 апр.

Заметка

Japan Reuters Tankan Index (APR)
Rep: 9 ✅As Expected ✅
Exp: 9
Prev: 10 (no revision)

The Japan Reuters Tankan Index stands at +9, down from the previous month's 10.

Businesses are still very much in Optimistic territory in Japan, however volume of goods exchanged appears stagnant and demand from China remains a concern

Japan Business vs Japan Consumer
In contrast to the Business Optimism in Japan as per the Japan Reuters Tankan Index above, the Japanese consumer is not as optimistic... We identified this last week using the Japan Consumer Confidence Index (CCI) which came in at 39.5 for March. Whilst this was the highest reading in 5 years for the Japan CCI and demonstrated a trending recovery from lows of 28.6 in Nov 2022, the Japan CCI remains below its historical average level of 40.86. Despite a sizable recovery since Nov 2022, the current 39.5 suggests the Japanese Consumer is still more pessimistic than the historical average.

Yen Weakness Impact
The Tankan Index report noted that sharp falls in the Yen may have pushed up the cost of imports in a blow to household consumption. Consumers may be carrying the burden of this cost which would align with the Japan CCI negative sentiment as advised by the consumers themselves in March.

The Yens currency weakness can be good for exports (currency incentive from foreign trade) but bad for the Japanese Consumer (Inflationary). One respondent from the Tankan report stated: "Our sales appear to be boosted due to the impact of a weak yen, but there's no sign of recovery in terms of volume.” . In other words, the currencies weakness results in more Yen being received for exports however volume of goods transacted and shipping of goods has not increased. China demand remains low and an ongoing concern.

Overall, Businesses are optimistic however modest volumes of goods being sold, the weakening Yen and lack of demand from China are causes for concern and potential stagnation.

Tankan is the Japanese abbreviation for Tanki Keizai Kansoku Chousa, the Short-Term Economic Survey of Enterprises in Japan.