Reuters Tankan Index

The Reuters Tankan Index is a monthly sentiment gauge for large and midsize Japanese manufacturers. Sentiment here means the balance of managers judging business conditions good versus poor. Reuters publishes the poll, formerly called Telerate Tankan, and Nikkei Research canvasses 499 to 506 non-financial firms in 2024 polls, with managers answering anonymously. It tracks the Bank of Japan quarterly Tankan survey of about 9000 firms and measures sentiment only, not output, orders, or volumes.

Responses are usually collected over about 10 to 12 days in roughly the first 2 weeks of the reference month. Reuters publishes around the middle of each month, usually on Monday, Tuesday, or Wednesday, with no fixed time; third-party calendars list 11:00 PM GMT. Each release also covers services sentiment, a 3 month ahead outlook, sector detail, and anonymous comments with no revisions, read against the 0 line. Markets read it as a leading indicator for the official quarterly Tankan, with above 0 optimism and below 0 pessimism.

The headline moves when large manufacturers change their verdicts on conditions and when key sectors shift together.

• Manufacturers business conditions: whether large manufacturers judge current conditions favourable or unfavourable.
• Non-manufacturers business conditions: companion services reading capturing services sector sentiment in the same release.
• 3 month ahead outlook: where manufacturers and services respondents expect conditions to be in 3 months.
• Sector detail: shifts in sectors such as electric machinery, metals, food processors, transport equipment, chemicals, wholesalers, and retailers move the headline.

On August 19, 2019, manufacturers slid to -4 from 3 in July 2019, the first negative reading and weakest since April 2013. The 3rd straight fall centered in electric machinery, metals, food processors, and transport equipment amid the United States-China trade war. Services plunged to 13 from 25 in July 2019 on drops at wholesalers and retailers. The 3 month outlook expected manufacturers to rebound to 3 by November 2019 while services stayed at 13, showing outlook divergence from weak conditions.

1. Ask: ask each firm whether business conditions are good or poor, with neutral replies counted but moving neither share.
2. Share: compute the % answering good and the % answering poor.
3. Subtract: index equals good share minus poor share, where DI equals P_good minus P_poor.
4. Equal weight: treat each respondent equally, with no firm size weighting and no stated seasonal adjustment, meaning no correction for predictable seasonal moves.
5. Example: 200 manufacturers reply, with 70 good, 90 neither, and 40 poor, so P_good equals 35%, P_poor equals 20%, and DI equals 15. Positive 15 means optimists outnumber pessimists by 15 points.