The quarterly economic release of the Japanese Tankan Survey is one of the most important surveys of Japan. It provides a measure of general business economic and trade activity. Japan is a nation that lacks natural resources and, because of its small size, is heavily dependent on their export market to attract foreign reserves to sustain its economy. Once the Bank of Japan has conducted their survey, the results are used to direct optimal monetary policy.

The focus on past quarterly trends coupled with present conditions and a question about future forecasts helps to further anticipate economic trends. Total Tankan Surveys are usually fairly lengthy and cover major economically strategic categories with various detailed subsets. (For information regarding economic indicators, review Economic Indicators: Overview.)

The Purpose of the Survey

The survey outlines a comprehensive picture of the health of Japan. Knowing the importance, respondents of Japanese companies honestly answer survey questions including expected capital expenditures. One of the most important and most monitored survey questions is regarding expected business conditions because it allows the government to predict production and exports. The Japanese employ a Diffusion Index and survey over 10,000 companies to measure favorable and unfavorable business conditions. Respondents are queried for their gauge of present conditions and further queried for a future forecast. Subtract the favorable from the unfavorable from all Japanese companies in the survey and the number is released as the official Tankan Survey rate. This figure allows investors to predict the overall movement of the Japanese economy.

Supply and Demand

Another area of interest and subset of business conditions is supply and demand conditions, inventories and prices for manufacturers. This focus is centered strictly to gauge the domestic economic climate because of Japan's dependence on manufacturing. Supply and demand includes basic materials and processes. The Japanese again employ a Diffusion Index that measures excess demand minus excess supply. Answers for Tankan Surveys are usually recorded by the Bank of Japan as a value which depicts the basic sentiment of the economy. Such a presentation allows for a national historical comparison to be presented in a concise manner.

Large manufacturers' opinion will be reflected the Japanese exchange rate, as net trade balances fluctuate from period to period. Answers are accumulated quarterly and are then averaged. Based on historical data and future expectations, the Bank of Japan develops an understanding of the monetary policy which is required to attain a stable exchange environment. What is amazing is the accuracy of these predictions and the ability of the Japanese to chart these predictions to form trendlines to determine future direction. (To learn more about global trade, read Global Trade And The Currency Market.)

Materials and Goods

Further subset questions of business conditions are "inventory level of finished goods" and "merchandise and wholesalers inventory". The largest focus asked concerns regarding basic materials and processing goods. Both are also measured with a Diffusion Index of favorable values subtracted from unfavorable values, thus providing a metric to evaluate the performance of the industry.

The last subset questions pertain to change in output prices and change in input prices. Both are measured by a Diffusion Index of rise minus fall and measured based on past, present and future predictions.

Sales

Next category is sales (current profits), ratio of current profits to sales and net income. Except for net income, these categories are asked to all manufacturers and non-manufacturers and delineated by small, medium and large companies. Answers are factored based on previous forecasts and present rates. These rates are called revision rates and are calculated as the percent change between current and previous surveys.

The fixed investment category includes such items as land purchasing expenses and software. Financial institutions including banks, insurance companies, securities companies and non-deposit institutions are also included in this section of the survey. The financial industry is omitted from other sections of the Japan Takan because the test primarily focuses on manufacturing. Responses to the fixed income category, in addition to other measures of the analysis, can have a significant impact on interest rates.

Employment conditions are determined for all industries with a diffusion index based on excessive employment minus insufficient employment. Furthermore, depending on the responses to some of the aforementioned criteria such as manufacturing forecasts, unemployment numbers can be determined. (The structure of major companies in Japan is steeped in tradition and relationships. For more information, check out Understanding Japanese Keiretsu.)

Corporate Finance

Corporate finance includes five categories. The financial position of the companies is asked of all industries categorized by small, medium and large companies. The answers are factored using a Diffusion Index of lax minus tight conditions. The cumulative value of the financial position can give insight into the national availability of credit. Lending attitude of financial institutions is asked for companies making up the financial industry and recorded with a Diffusion Index of accommodative minus severe conditions. Other financial inquires pertain to areas of interest rates on loans, conditions of commercial paper issuance and ratio of liquidity. Similar to the capital expenditure based questions, which dictate the general movement of the manufacturing sector, these questions give an overview of the financial economic environment.

Business conditions of financial institutions is the last category of the Tankan Survey yet questions and results are not found in the official Tankan Reports. Instead they are found in the summary reports and used strictly as a supplement to gauge overall conditions.

The Tankan Survey is mailed to all companies in Japan on a quarterly basis. It is mandated by Japanese Statistics Law 53 passed in 2007. Historically, the survey began in 1957 with regular updates and revisions such as the latest 2007 revisions to reflect new and changing business conditions in Japan. For example, the 2007 revisions increased the sample sizes from 9,789 companies to 11,026. Companies are not mandated to respond yet the participation rate is very high.

The Bottom Line

In this instance, the Diffusion Index has always been factored based on performance to actual results. Yet ranges have changed. Instead of favorable to unfavorable, middle categories were inserted such as somewhat favorable. This changes Diffusion readings. Large companies are classified as $1 billion yen or more, medium companies are classified as $100 million yen to less than $1 billion and small companies are classified as $20 million yen to less than $100 million. (For further reading, refer to The U.S. Dollar And The Yen: An Interesting Partnership.)

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  2. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  3. Investing Basics

    Explaining Trade Liberalization

    Trade liberalization is the process of removing or reducing obstacles that impede the exchange of goods and services between nations.
  4. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  5. Economics

    The Problem With Today’s Headline Economic Data

    Headwinds have kept the U.S. growth more moderate than in the past–including leverage levels and an aging population—and the latest GDP revisions prove it.
  6. Forex Education

    These Are The Best Hours To Trade the British Pound

    The best times to trade the British pound are centered around economic releases at 1:30 am, 2:00 am, 8:30 am and 10:00 am U.S. ET.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI South Africa

    Learn more about the iShares MSCI South Africa fund, which is an NYSE-listed exchange-traded fund offered and managed by BlackRock.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI EAFE Small-Cap

    Read an in-depth analysis of the iShares MSCI EAFE Small-Cap Fund, a well-managed exchange-traded fund that tracks small-cap international stocks.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Global ex-US Real Estate

    Take an in-depth look at the Vanguard Global ex-U.S. Real Estate ETF, an international property fund tilted toward Asian markets.
  10. Economics

    Is the Yuan a Yawn or a Nightmare for Investors?

    China’s decision to change the method of setting its currency exchange rate caused global shock waves last week.
RELATED TERMS
  1. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  2. Optimal Currency Area

    The geographic area in which a single currency would create the ...
  3. European Sovereign Debt Crisis

    A period of time in which several European countries faced the ...
  4. G.19 Report

    A monthly statistical report from the U.S. Federal Reserve that ...
  5. Asian Infrastructure Investment ...

    The Asian Infrastructure Investment Bank (AIIB) is an international ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. Is Japan an emerging market economy?

    Japan is not an emerging market economy. Emerging market economies are characterized by low per capita incomes, poor infrastructure ... Read Full Answer >>
  2. What kinds of costs are included in Free on Board (FOB) shipping?

    Free on board (FOB) shipping is a trade term published by the International Chamber of Commerce or ICC, that indicates which ... Read Full Answer >>
  3. How might a company use demographics to assess the size of a potential market?

    Demographics can be used to help a company determine key characteristics of the potential population to which it company ... Read Full Answer >>
  4. What are the differences between B-shares and H-shares traded on Chinese stock exchanges?

    Equity listings in China generally fall under three primary categories: A shares, B shares and H shares. B shares represent ... Read Full Answer >>
  5. What are the differences between H-shares and A-shares on Chinese and Hong Kong stock ...

    Publicly trade companies in China generally fall under three share categories: A shares, B shares and H-shares. A-shares ... Read Full Answer >>
  6. Why are financial markets considered to be transparent?

    Financial markets are considered transparent due to the fact it is believed all relevant information is freely available ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!