BOJ Tankan Survey
The Bank of Japan's quarterly Tankan survey - business sentiment and its impact on JGBs
BOJ Tankan Survey (短観)
Full name: Short-term Economic Survey of Enterprises in Japan (全国企業短期経済観測調査)
Published by: Bank of Japan
Release: Quarterly - Early April, July, October, December (covers prior quarter)
What it measures: Business sentiment across Japanese corporations
The Tankan is one of the most closely watched economic indicators in Japan—arguably more influential than GDP releases—because it:
- Captures business sentiment directly from 10,000+ companies
- Forward-looking: Includes forecasts for next quarter
- Granular: Breaks down by industry, firm size, region
- BOJ’s own survey: Direct input into monetary policy decisions
- Timely: Released within weeks of quarter-end
Market impact: Tankan releases routinely move 10Y JGB yields by 5-10bp on surprises.
Diffusion Index (DI) Methodology
Core metric: Diffusion Index for business conditions
\[\text{DI} = \text{(\% Favorable)} - \text{(\% Unfavorable)}\]Survey question (translated):
“Regarding current business conditions, how would you describe your company’s situation?”
- Favorable (favorable)
- Not so favorable (not favorable)
- Unfavorable (unfavorable)
DI calculation example:
- 40% of firms respond “Favorable”
- 35% respond “Not so favorable”
- 25% respond “Unfavorable”
- DI = 40 - 25 = +15
Interpretation:
- DI > 0: More optimistic than pessimistic firms (expansion)
- DI = 0: Neutral sentiment
- DI < 0: More pessimistic than optimistic (contraction)
Why DI Matters More Than Absolute Value
DI change (quarter-over-quarter) signals turning points in business cycle.
Example (December 2023 Tankan):
- Large manufacturing DI: +12 (actual) vs +9 (forecast)
- Previous quarter: +9
- Change: +3 points (acceleration in sentiment)
- Market interpretation: Business confidence improving → CapEx likely to rise → GDP growth stronger → BOJ may normalize policy sooner
- 10Y JGB reaction: 0.60% → 0.68% (+8bp)
Key Categories in Tankan
The BOJ publishes DI data across multiple dimensions. Markets focus on these core categories:
By Sector
1. Large Manufacturing DI ⭐⭐⭐⭐⭐ (Most watched)
- Covers: Major exporters (autos, electronics, machinery)
- Typical range: -20 (recession) to +30 (boom)
- October 2024: +14
2. Large Non-Manufacturing DI ⭐⭐⭐⭐
- Covers: Services, retail, construction, real estate
- Typically higher than manufacturing (domestic demand focus)
- October 2024: +34
3. Small Enterprises DI ⭐⭐⭐
- Manufacturing SMEs: October 2024: +1
- Non-manufacturing SMEs: October 2024: +12
- Less market impact but signals broad-based sentiment
Historical Tankan DI (Large Manufacturing)
| Period | Large Mfg DI | Economic Context | JGB 10Y Yield |
|---|---|---|---|
| Q1 2009 | -58 | Global financial crisis trough | 1.30% |
| Q2 2013 | +4 | Abenomics begins | 0.85% |
| Q4 2019 | 0 | Pre-COVID peak | 0.00% |
| Q2 2020 | -34 | COVID shock | 0.00% (BOJ capped) |
| Q4 2021 | +18 | Recovery | 0.07% |
| Q1 2023 | +1 | China slowdown concerns | 0.35% |
| Q4 2023 | +12 | Strong recovery | 0.60% |
| Q3 2024 | +14 | Sustained expansion | 0.85% |
Key insight: When large manufacturing DI crosses 0 → positive, it historically signals recession is over → Markets price in BOJ normalization → JGB yields rise.
By Firm Size
Large enterprises (資本金10億円以上):
- More sensitive to global conditions
- Export-oriented
- Better access to financing
Medium enterprises (資本金1億円-10億円):
- Mix of domestic/export exposure
- DI typically 5-10 points below large firms
Small enterprises (資本金20百万円-1億円):
- Primarily domestic focus
- Struggle more in downturns
- DI often negative even in expansions
Capital Expenditure Plans: The Forward-Looking Signal
Beyond sentiment, Tankan includes firms’ actual capital expenditure (CapEx) plans for the fiscal year.
Published as: Year-on-year growth rate in CapEx spending
Why it matters:
- Leading indicator for GDP growth: Business investment = 25% of GDP
- Signals confidence: Companies only invest if they expect future profits
- Validates sentiment: If DI is positive but CapEx plans weak → Skepticism about durability
CapEx Plan Dynamics
Pattern within fiscal year:
| Survey Month | Typical CapEx Forecast | Reliability |
|---|---|---|
| March | Conservative (+2-3%) | Low (just planning) |
| June | Revised up (+4-5%) | Medium (budget allocated) |
| September | Revised up (+5-6%) | High (execution underway) |
| December | Final (+6-7%) | Actual (nearly complete) |
Markets focus on:
- Initial plan (March): Sets baseline expectations
- Revisions (June/September): Upward revisions = confidence building
- Final vs. initial: Large gap = economy stronger than expected
Historical CapEx and JGB Yields
| Fiscal Year | Large Mfg CapEx (FY plan) | Actual Growth | 10Y JGB (year-end) |
|---|---|---|---|
| FY2019 | +3.8% (March) → +5.1% (final) | Strong execution | 0.00% |
| FY2020 | -5.7% (March) → -11.6% (final) | COVID collapse | 0.02% |
| FY2021 | +4.2% (March) → +11.7% (final) | V-shape recovery | 0.07% |
| FY2022 | +15.6% (March) → +17.9% (final) | Boom | 0.42% |
| FY2023 | +12.3% (March) → +13.8% (final) | Sustained strength | 0.65% |
| FY2024 | +10.1% (March) → TBD | Ongoing | 0.95% |
Correlation: CapEx growth (realized) vs. 10Y JGB yield change = +0.65 (strong positive)
Interpretation: Strong CapEx → Economic growth → Inflation pressures → BOJ tightening → Higher yields
Example (June 2023 Tankan):
- FY2023 large manufacturing CapEx plan: +12.7% (vs +10.5% in March)
- Upward revision of +2.2ppt = stronger confidence than 3 months prior
- Market reaction: 10Y JGB 0.40% → 0.45% (+5bp)
- Logic: Higher CapEx → GDP growth upgrades → BOJ may exit YCC sooner
JGB Market Impact: Trading Tankan Releases
Release time: 8:50 AM JST (before Tokyo market open)
Pre-positioning (day before):
- Nikkei/Bloomberg consensus forecasts published
- Traders position based on expected surprise direction
- Options market prices in ~5bp expected volatility
Immediate Reaction (8:50-9:00 AM)
Surprise formula:
\[\text{Surprise} = \text{Actual DI} - \text{Consensus Forecast DI}\]Market reaction guide:
| Large Mfg DI Surprise | Interpretation | 10Y JGB Typical Move |
|---|---|---|
| +5 points or more | Strong beat → Growth/inflation optimism | +8 to +12bp |
| +2 to +4 points | Modest beat | +3 to +5bp |
| -1 to +1 points | In line | ±1bp (noise) |
| -2 to -4 points | Modest miss | -3 to -5bp |
| -5 points or more | Large miss → Growth concerns | -8 to -12bp |
Example (April 2024 Tankan - Q1 results):
- Large manufacturing DI: +11 (actual) vs +8 (consensus)
- +3 point surprise (positive)
- Large non-manufacturing DI: +32 (actual) vs +30 (consensus)
- 8:50 AM release → 10Y JGB: 0.75% → 0.82% (+7bp by 9:30 AM)
- Interpretation: Broad-based strength + wage growth (Shunto +5.3%) = BOJ on track to exit YCC → Yields spike
Secondary Analysis (9:00-10:00 AM)
Markets dig into details:
- CapEx revisions: Upward = bullish for growth
- Forward-looking DI: Next quarter expectations
- Industry breakdown: Which sectors driving change?
- Small enterprise DI: Broad-based or just large firms?
If details contradict headline:
- Strong DI but weak CapEx → Reversal of initial move (-3bp)
- Strong large firms but weak SMEs → Questions about sustainability
Multi-Quarter Trends
Consecutive beats (3+ quarters):
- March 2023: DI +1 (beat by +3)
- June 2023: DI +5 (beat by +2)
- September 2023: DI +9 (beat by +3)
- December 2023: DI +12 (beat by +3)
- Cumulative impact: 10Y JGB 0.35% (March) → 0.65% (December) = +30bp over 9 months
- Narrative: “Japan finally escaping deflation mindset”
Key Takeaways
-
Tankan is BOJ’s primary business sentiment gauge: Published by central bank itself → Direct input into policy decisions → Markets watch closely
-
Large manufacturing DI is the headline: Most quoted metric, captures export-oriented Japan Inc. sentiment → +5 point surprise = ±8-10bp JGB move
-
DI change matters more than level: Improving sentiment (+3 points QoQ) signals turning point → BOJ policy pivot → Yields move even if absolute DI still low
-
CapEx plans validate sentiment: Strong DI + rising CapEx = durable expansion → Higher yields; Strong DI + flat CapEx = skepticism → Muted yield response
-
Revisions throughout fiscal year: March plan conservative → June/September revised up → December actual often +2-4ppt higher → Each upward revision = +3-5bp yields
-
Historical milestones trigger shifts: DI crossing zero (recession → expansion) or reaching +15 (boom territory) = Major policy implications → Large yield moves (±20bp)
-
Release timing before market open: 8:50 AM JST → Traders position overnight on consensus → Surprise creates immediate gap opening in JGB futures
Conclusion
The BOJ Tankan survey is arguably the most important regular economic release for JGB markets outside of CPI and wage data. Its unique position as:
- BOJ’s own survey (not external statistics agency)
- Quarterly forward-looking guidance (next quarter DI forecasts)
- Comprehensive coverage (10,000+ firms, all sectors, all sizes)
- CapEx plans integration (validates sentiment with actual spending intentions)
…makes it indispensable for understanding Japan’s economic momentum and BOJ policy trajectory.
Trading implications:
- Position before 8:50 AM release based on consensus (avg surprise ±3 points)
- React immediately to DI surprises >±2 points (5-10bp moves in first 10 minutes)
- Analyze CapEx revisions for sustainability signal (upward = bullish for yields)
- Track multi-quarter trends (3+ consecutive beats = structural shift pricing)
The December 2023 → April 2024 Tankan sequence, showing sustained DI improvement (+12 → +11) combined with strong CapEx (+10% plans) and record Shunto wage gains (+5.3%), provided the confidence for BOJ to exit YCC in March 2024. This demonstrates Tankan’s role as a critical confirmatory indicator for major policy shifts affecting JGB markets.
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