Masaki Kuwahara, Research Analyst at Nomura, expects the current business conditions DI for large manufacturers to come in at 10, down 2pt from the December survey, and forecast the same DI for large nonmanufacturers will come in at 25, unchanged from December. Key Quotes “We made reference to the Reuters Tankan and the QUICK Tankan. The manufacturing sector business conditions DI for March was down 3pt from December in the Reuters Tankan and down 12pt in the QUICK Tankan. We see key factors as weakness in exports and industrial production. For the nonmanufacturing sector, the DI in the Reuters Tankan was up 6pt from December but the DI in the QUICK Tankan was down 3pt, giving a mixed picture. With domestic demand comparatively firm, we forecast the nonmanufacturing sector DI in the BOJ Tankan to be unchanged from December. For the future conditions DIs, we forecast the figure for large manufacturers to be 1pt lower than the current conditions DI, and that for nonmanufacturers to be 2pt lower. For nonmanufacturers, the future conditions DIs in the Reuters and QUICK Tankan were worse than the March current conditions DIs. For manufacturers, both surveys show a 1pt rise from the March current conditions DI, but we note that the size of improvement in the future conditions DI in the BOJ Tankan tends to be smaller than in the other two surveys. The March report will contain the first set of BOJ Tankan data for fixed investment forecasts for FY16. The Ministry of Finance’s Business Outlook Survey showed a decline of 10.9% y-y in corporate capex forecasts (excluding software, including land; same hereafter) for FY16 (as of the 15 February survey). It is normal for capex forecasts to be weak at this time, just before the start of the new fiscal year, and it is perhaps more important that the projected decline is smaller than for the capex forecasts for FY15 a year ago, which pointed to a 13.2% fall (see 2016 Q1 Business Outlook Survey, 11 March 2016). A QUICK survey puts the market consensus (median) for the business conditions DI for large manufacturers at 8, and that for large nonmanufacturers at 23, weaker than our figures. The markets might be focusing on the impact of financial market fluctuations on corporate sentiment. The above related statistics could be taken to suggest a deterioration in sentiment, but they can also be taken to show that deterioration has not been that great, as seen in the nonmanufacturing index in the Reuters Tankan improving. Also considering that fluctuations in these related statistics tend to be larger than in the BOJ Tankan, if anything we see greater upside risk for the business conditions DI versus the market consensus. The market consensus (QUICK survey median) for FY16 fixed investment plans is for a decline of 4.6% y-y on an all enterprises, all industries basis, and a decline of 0.7% on a large enterprises, all industries basis (our forecast: -0.6%), broadly in line with our figures.” For more information, read our latest forex news.