What Is the Tankan Survey?

The Tankan survey is an economic survey of Japanese businesses issued by the Central Bank of Japan, and is used to formulate its monetary policy.

A reading greater than 0 represents favorable conditions, while a number less than 0 represents unfavorable conditions. Tankan Business Conditions were negative for most of the period between 1991 to 2000, also known as the “Lost Decade”, a time of prolonged economic stagnation in Japan.

Key Takeaways

  • The Tankan survey is an economic survey of Japanese businesses with a specified minimum amount of capital or influential firms.
  • It consists of four categories and 26 items.
  • It is a key financial measure that has an effect on the country's overall economic sentiment as well as stock prices and currency rates.

Understanding the Tankan Survey

The Tankan survey covers thousands of Japanese companies with a specified minimum amount of capital, although firms deemed sufficiently influential may also be included. According to a Bank of Japan document, the list of companies does not include which have a "weak link with economic conditions" such as education and health care.

The companies are asked about current trends and conditions in the business place and their respective industries as well as their expected business activities for the next quarter and year. There are four categories–judgement survey, annual projections, inflation outlook for enterprises, and number of new graduates hired—and 26 items in the survey. The mix of questions is eclectic and pertains to details related to each of these categories. For example, firms are asked about domestic demand and supply, inventory levels, projections for inflation, and the number of new graduates they hired in the last year.

Influence of Tankan Survey

The Tankan survey is one of the key financial measures in Japan and has considerable influence on stock prices and the currency rate. The portion of the Tankan survey that provides an index of large manufacturers is considered to be a leading gauge of Japanese economic growth. The report is released four times a year in April, July, October and mid-December.

Japan’s economy is highly developed and one of the largest in the world. Japan is one of the world’s largest automobile manufacturing country and also has one of the largest electronic goods industry. Japan is also often ranked among the world's most innovative countries and leads several measures of global patent filings.

Bank of Japan

The Bank of Japan (BOJ) is headquartered in the Nihonbashi business district in Tokyo. The BOJ is responsible for issuing and handling currency and treasury securities, implementing economic policy, maintaining the stability of the Japanese financial system and providing settling and clearing services. Like most central banks, the BOJ also compiles and aggregates economic data and produces economic research and analysis.

The Japanese governor, Haruhiko Kurodaank as of April 2021, is the head of the BOJ, along with two deputy governors and six executive directors. The governor, deputy governors and executive directors belong to the bank's Policy Board, which is the Bank's decision-making body. The Board sets currency and monetary controls, the basic principles for the Bank's operations, and oversees the duties of the Bank's officers, excluding auditors and counselors. The Policy Board includes the governor and the deputy governors, auditors, executive directors, and counselors.

The BOJ decides and implements Japanese monetary policy to maintain price stability. The Bank adjusts interest rates for the purpose of currency and monetary control using operational instruments, such as money market operations. The Policy Board decides monetary policy at Monetary Policy Meetings (MPMs). At these meetings, the Policy Board discusses the nation's economic and financial situation, sets the guidelines for money market operations and sets the BOJ's monetary policy stance for the immediate future.

Example of Tankan Survey

Tankan Survey Q1 2016-Q1 2021
Tankan Survey Q1 2016-Q1 2021.

The Tankan survey had been rising steadily from 2016 into 2018, as can be seen from the chart above, before turning sharply negative in 2019 and into 2020. During the COVID-19 pandemic in the Spring of 2020, the survey registered a record low of -34.00, before bouncing back, and finally reaching positive territory again in the first quarter of 2021.