Japan Strategy: June Tankan survey supportive of Japanese equities

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Japan Strategy: June Tankan survey supportive of Japanese equities

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02 Jul 2026 12:22:22 ET │ 16 pages

Japan Strategy

June Tankan survey supportive of Japanese equities

CITI'S TAKE

Ryota Sakagami AC

We believe the Bank of Japan's June Tankan survey, released on July 1, was +81-3-6776-4653

positive for Japanese equities in three key aspects: 1) actual business ryota.sakagami@citi.com

conditions significantly exceeded the forward-looking expectations from

the previous survey (i.e., the business conditions surprise index was Keishi Ueda

substantially positive), 2) amid tight supply-demand conditions, the survey +81-3-6776-5110

confirmed companies' determination to promptly pass on cost increases in keishi.ueda@citi.com

prices, and 3) FY26 capex plans were substantially revised upward, with

software investment strength particularly notable.

June Tankan survey shows significant improvement in business conditions

surprise index — The business conditions surprise index for large enterprises and all

industries in the June Tankan survey was +8, the highest level since the March 2021

survey. Most industries saw positive business condition surprises (Figure 1), with

manufacturing showing a particularly large change in the magnitude of the surprise

was larger (Figure 2). Since the business conditions surprise index tends to correlate

strongly with the positive surprise ratio in quarterly earnings, we expect an increase

in companies delivering positive surprises, centered on manufacturing, in their FY26

Q1 earnings releases (Figure 3).

Q1 earnings content easily reflected in stock prices — July and August, when

Japanese companies announce Q1 earnings, are characterized by the absence of

clear factor anomalies, unlike other periods (Figure 4). We believe this is partly