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Japan Tankan: Manufacturing deteriorates while non-manufacturing improves

In Q1, Japan’s Tankan large manufacturing index dropped for the fifth consecutive quarter, falling from 7 to 1, below the expected 3, and marking the lowest level since December 2020. The large manufacturing outlook also tumbled from 6 to 3, missing the anticipated 4. This decline was attributed to rising raw material and fuel costs, slowing overseas growth, and slumping chip demand.

Conversely, the non-manufacturing index improved for the fourth straight quarter, ticking up from 19 to 20, in line with expectations. The non-manufacturing outlook rose from 11 to 15, although it fell short of the expected 16.

Despite these mixed results, large Japanese firms plan to increase capital expenditure by 3.2% in the fiscal year that began in April, which is lower than the market’s forecast for a 4.9% gain. The Tankan survey also revealed that Japanese firms anticipate inflation to reach a record 2.8% a year from now and remain above the BoJ’s target for the next three to five years.

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