The mediocre increase in business conditions across all firm sizes in the latest Tankan suggests that the activity is unlikely to rebound meaningfully this quarter, following a slowdown in Q3. The Tankan’s headline index of business conditions for large manufacturers edged upwards from +13 to +14. Meanwhile, conditions for large non-manufacturers fell slightly from +34 to +33, but the previous print was the strongest since the early-1990s so this is hardly cause for concern. Across all firm sizes and industries, business conditions edged upwards to +15, the highest result since 2018. However, while the index value may inspire some optimism, the point change compared to the previous quarter is on past form consistent with quarterly GDP growth slowing down to around 0.1% q/q following the 0.3% it registered in Q3, which aligns directly with our current forecast. (See Chart 1.)
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