Japan Software/IT Service Sector: Bank of Japan’s software investment plans

From the Bank of Japan (BOJ) Tankan, or Short-Term Economic Survey of Enterprises in Japan, key points for software investment in the survey of business conditions were announced 3 October: 1) growth in FY22 plans accelerated from the June survey, 2) continued growth for financial institutions mainly due to a rise in investment plans for banks, and 3) continued strong growth among large companies, but little sign of recovery at small and medium-sized firms.

In the financial industry, spending levels remained high from June for insurance companies  and improved sharply for banks, where weightings are substantial. In the banking industry, the trend aligns with indications in our interviews with various IT vendors that projects are starting to move at the megabanks in particular.

Software investment among all enterprises of all sizes has remained relatively steady compared with changes in the macro environment. Among manufacturers, large companies in particular revised down investment plans, but investment plans for large manufacturers remain elevated. Meanwhile investment plans at nonmanufacturers have improved, with large nonmanufacturers at the highest level in five years.

Among small and medium-sized firms, manufacturers’ investment plans improved slightly, but the overall outlook did not change much. Continued investment by large firms could eventually have an impact on small and medium-sized firms, but based on macro conditions, we expect a recovery in momentum will take some time.