The Tankan — the Bank of Japan quarterly survey

Four times a year, early on a Tokyo morning, the Bank of Japan publishes the result of a survey filled in by thousands of Japanese companies. It is called the Tankan, and for decades it has counted as the fullest available picture of the second-largest developed economy in Asia. This is no second-tier indicator — the central bank itself treats it as one of the important inputs it weighs when setting monetary policy. In this article I explain what the Tankan actually is, how to read it, and why it can move the yen.

What the Tankan actually is

The Tankan (短観) is the short name for a Japanese title best rendered as the "short-term economic survey of enterprises in Japan". It is conducted and published by the Bank of Japan (BoJ) four times a year — in April, July, October and December. Each round is filled in by thousands of firms from across the country, from the giant export conglomerates down to small domestic businesses. This scale and regularity put the Tankan among the most respected business surveys in the world, not only inside Japan itself.

At the heart of the survey is a simple question put to every firm: are current business conditions favourable, normal or unfavourable. From the answers comes a single number, which I describe in the next section. The survey also gathers companies' forecasts for the coming quarter, their capital-spending plans for the financial year and — importantly for the central bank — the firms' own expectations for inflation. As a result, one report ties together sentiment, hard spending plans and price expectations in a single, coherent picture of the economy.

How to read the diffusion index

The Tankan result is reported as a diffusion index. The calculation is trivially simple: you take the percentage of firms that judge conditions favourable and subtract the percentage that judge them unfavourable. If more companies are satisfied than dissatisfied, the index is positive; in the opposite case it drops below zero. A value of zero means the two groups balance out. That is why the reading can appear both above and below zero, and why its sign alone carries concrete information about sentiment.

The most widely quoted number in the report is the index for large manufacturers. These firms — the big carmakers and electronics producers — are the most exposed to global conditions and to the level of the yen, so the market treats their mood as a litmus test. Alongside it you will find separate indices for large non-manufacturers and for small firms, plus aggregate capital-spending plans. A seasoned reader does not look only at the headline figure but compares whether sentiment in manufacturing, in services and among small firms is moving in the same direction.

Why the Bank of Japan values the Tankan

The Bank of Japan's mandate is, above all, price stability, understood as durable inflation around two percent. To judge whether the economy is heading that way, the bank needs a reliable picture of what is really happening inside firms — and the Tankan delivers it first-hand, straight from companies rather than from models. Strong sentiment and rising investment plans suggest an economy gathering pace, which strengthens the case for less accommodative policy. A weak reading works the other way and gives a reason to wait before tightening.

„The Tankan is a statistical survey that aims to capture the overall picture of business activity of enterprises and monetary conditions in Japan." — Bank of Japan, Outline of the Tankan, 2023.

Two elements are especially valuable to the bank, and they are hard to find in other releases. The first is firms' investment plans — a real declaration of how much companies intend to spend, and so a leading signal about future growth. The second is the inflation expectations of the firms themselves, which for a bank targeting price stability are worth their weight in gold. If you want to see how these inputs translate into actual decisions, I cover it at greater length in the piece on the Bank of Japan's monetary policy and what moves the yen.

When and how the Tankan reaches the market

The report comes out early in the Tokyo morning, which for Europe means the middle of the night or the very early hours. The first market reaction therefore plays out during the Asian session, before London sits down at its desks. A trader in our time zone usually finds the reading and the first move already in place, rather than watching the release live. That is the natural order of things with Japanese data, and it is worth marking those four dates a year in the calendar in advance.

The Tankan is a survey, not a single hard print like an inflation reading, so the market reads it in context. What matters is less the value of the index than how it compares with the previous quarter and with analyst expectations. A single reading is rarely a turning point; its significance grows when it confirms or breaks the existing direction of sentiment. So it is best treated as one piece of a larger puzzle, sitting next to the bank's decisions, inflation and labour-market data. For how to fit such releases into a weekly plan, I walk through it in the guide on using an economic calendar step by step.

How the Tankan feeds through to the yen

The mechanism by which the Tankan reaches the exchange rate runs through expectations for Bank of Japan policy. A strong reading that reinforces the case for less accommodative policy — that is, higher interest rates in future — tends to strengthen the yen, because higher rates attract capital. A weak reading works the other way and weakens the Japanese currency. This is not a reaction to the number itself, but to what it implies for the central bank's coming decisions.

The move shows up most clearly in the dollar against the yen and in the yen crosses, such as the euro against the yen or the pound against the yen. Remember that the yen is a classic safe-haven currency and a funding currency for carry-trade positions, so it can also be sensitive to the global mood for risk — which may amplify or mute the reaction to the report. The Bank of Japan is no island either; its path is best read alongside the Fed and the European Central Bank, which I discuss in the piece on watching the Fed, the ECB and the Bank of Japan as one system. For a broader view of how macro data drives currencies, see the fundamental analysis section on ForexMechanics.

Common misunderstandings

The first misunderstanding is treating the Tankan as a simple "buy or sell the yen" signal. The survey speaks to companies' sentiment and plans, not to the direction of the rate over the next few hours — its value is indirect, through its effect on expectations for the central bank. The second is fixating only on the headline large-manufacturer number and ignoring the investment plans and inflation expectations, which for the bank itself can matter more. The third is confusing a reaction to the reading with a reaction to its gap from expectations — the market prices the forecast in advance, so what counts is the surprise, not the absolute value.

What now

1. Put the four Tankan dates in your calendar. Mark April, July, October and December in your trading calendar as the survey's release months and set a reminder for the day before. That way no reading catches you off guard, and the morning move in the yen will not be a puzzle without context.
2. Open the official Tankan page and find the four figures. Go to the Bank of Japan statistics site and locate, in the latest report, the index for large manufacturers, the same for non-manufacturers, the index for small firms and the capital-spending plans. Write them down side by side to see whether sentiment across different parts of the economy is moving in step.
3. Compare the reading with the previous quarter and the forecast. Instead of looking at the value alone, check whether the index rose or fell against the previous survey and whether it came out above or below analyst expectations. It is the gap between those numbers, not their level, that decides the strength of the yen's reaction.