Tankan Shows Steady MFG Reading in Q3

Japan’s Tankan for 2024-Q3 scored a +13.0 for large manufacturing firms, the same as in Q2. Large manufacturing firms are the bellwether reading for this survey. However, there also was an improvement for nonmanufacturing firms in Q3.

There is also a look ahead reading for Q4 in the survey. Again, on this basis, the large manufacturers log a reading of +14, the same as in Q3. Nonmanufacturers show a one-point improvement in their outlook.

The percentile standing data show large manufacturers have a 69.3 percentile standing in Q3. Nonmanufacturing firms are stronger with a 98.7 percentile standing. The outlook shows manufacturing firms at a 76-percentile standing with nonmanufacturing firms at a 100% percentile range standing – at their strongest standing on data back to 2006.

Across the various detailed nonmanufacturing sectors, six of these sectors have rankings in their 90th percentile. The sector, taken as a whole, has a 97.1 percentile standing. Personal services have a ranking only in its 50.7 percentile. Construction has a 65.3 percentile standing.

None of the Tankan sector readings are weak. The industry series are essentially at their medians or better- personal services is essentially a median reading. All nonmanufacturing industries except wholesaling and personal services are above their respective one-year averages. Manufacturing also is above its one-year average.

Japan’s Tankan puts the economy in a better light than the S&P PMI data. PMI data rank current manufacturing as ‘strong’ only on the last four- and one-half years of data when PMI values in manufacturing has been chronically weak and consistently below a reading of 50 since late-2022. The Tankan data span a longer period and rate all industries as solid-to-strong over that profile. There is no evidence of any impact on the economy from the sharp run-up in the yen’s value on current manufacturing performance or embedded in expectations.

The Tankan is a much more solid report that would seem to off the BOJ plenty of room to raise rates again if it desires to do that to get Japan’s interest rate levels back to a more normal zone.