A Major Economic Report From Japan Is Coming Up

At 7:50 p.m. ET, Japan will release the results of its Q2 Tankan Survey.

This report measure sentiment among Japan's large manufacturers.

Economists are looking for reading of 3 in Q2, up from a Q1 reading of -8.

This would represent a turn to economic optimism.

The Tankan outlook index is expected to improve to 7 from a Q1 reading of -1.

For years, Japan's economy has been struggling to grow.  The country's prime minister Shinzo Abe and central bank governor Kuroda have committed to stimulate the economy through ultra-easy monetary policy.

This report will reveal if companies are really buying into it.

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Here's a preview from Soc Gen:

In the previous Tankan survey (March), business conditions had broadly improved on the back of Abenomics which has brought a weaker yen and a stronger stock market. However, the improvement in March was not as strong as we had expected and the results still showed business sentiment in the manufacturing segment at depressed levels (-8 for the current index and -1 for the outlook). However, since the previous survey however, the BoJ has started a new ultra-loose monetary policy, and we think business conditions will have further improved.

Although the yen is not as weak as the level briefly reached in May (USD/JPY reached above 103), the current level of USD/JPY at 97-98 is much higher than what large manufacturers had expected for H1 FY13 (85.33), as shown in the March Tankan survey. In addition, further gains in the stock market boosted consumer confidence to a level not seen since 2007, and this will also have affected domestic business conditions.

Moreover, the recent recovery in exports will also have boosted manufactures’ perception of business conditions. Therefore, we expect the June Tankan survey to again show strong benefits from Abenomics and we also see more scope for corporate profits to come in above the firms’ original guidance.

We expect the further improvement in the June Tankan survey to be concentrated among large manufacturing firms, as they are likely to have benefited most from yen depreciation, and predict that this index will jump to 4 from -8 in March. We also expect the outlook index to extend growth to 8 in September.

In terms of business conditions for large non-manufacturers, we expect to see an improvement in areas such as construction and real estate, which are likely to have been boosted by an increase in infrastructure spending resulting from Prime Minister Abe’s stimulus package. We expect the large non- manufacturing index to have improved to 12 from 6 in March, and the outlook for September to have improved further to 15.

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