Japan's business conditions DI: manufacturing down, non-mfg up

Japan's business conditions diffusion index (DI, favorable minus unfavorable, pp) among large manufacturers deteriorated by 3 points to 12, compared to the June survey, according to the Bank of Japan (BoJ) September Tankan (quarterly economic outlook) survey. The forecast DI, which looks three months ahead, stands at 10, which means the expectation is for conditions to deteriorate by a further 2 points. These are mostly in line with market expectations. 

In contrast, the business conditions DI among large non-manufacturers improved to 25, from 23 in the June survey. The improvement in business sentiment is a positive surprise, as the market had expected a slight downturn in sentiment in the service sector. The forecast DI calls for a drop to 19, but this is still high in absolute terms, and the indication is that sentiment remains firm in Japan's service sector. 

The supply and demand DI for manufactured goods (excess demand minus excess supply) fell among manufacturers with regard to overseas markets, but was flat or improved slightly among manufacturers with regard to domestic markets and among non-manufacturers. The overall indication is that the export environment is deteriorating, but domestic demand remains relatively firm.