BOJ Tankan shows improvement in Japan

Reviewed By Hitoshi URABE

Article:
"BOJ Tankan shows improvement in Japan"
http://afr.com/asia/2002/07/01/FFX6EUU833D.html
Financial Review (AFR Wires)

Related Article:
"Takenaka Says Exports Not Japan's Sole Engine"
http://www.nytimes.com/reuters/business/business-economy-japan.html
By REUTERS

Comments:

Bank of Japan's quarterly tankan report was publicized yesterday. The report is one of the most watched economic surveys for its unique characteristics. One is that it is a summary of replies submitted by private corporations all over Japan, at times close to ten thousand companies. And it is publicized with a relatively small time lag, of about two weeks from data collection. It should also be noted that the numbers in the report are very easy to understand, especially the business sentiment figures which is the core of the report. Instead of fancy seasonal and other adjustments, the business sentiment figures are calculated by simple subtractions where the numbers of companies who feel the economy is bad is subtracted from that of who feel it is good. For example, if an announced figure is, say, ten, then it means there are ten more optimistic companies than pessimistic ones, out of assumed total of one hundred.

As reported in the article, the tankan showed a significant improvement in the business sentiment among private companies generally compared to the past reports, in sync with the encouraging signs of recent economic indicators and the analyses by economists.

However, there are a few elements in the tankan that has made people cautious. One is the assessment of exchange rate through the term which tankan presumes it to be 125.73 yen to the dollar for the fiscal 2002. It was after the tankan survey that the dollar plunged in the foreign exchange market to below 120 yen. This could have grave effects on exports of corporations who intend to rely on it for their performance to improve. And sure enough, in the following pages of the report, there is a figure for planned or expected volume of export by large manufacturers, which shows 2.4% expected increase for the fiscal 2002. The recent exchange rate obviously obscures this assumption. The report also could not take into account the recent turmoil in the U.S. stock market, which many worry it to be a sign of the slowdown of the U.S. economy.

The day before the tankan report, Economics Minister Heizo Takenaka was reported to comment that Japan's recovery earlier in the year had been based more on domestic demand than on export. (see Related Article "Takenaka Says Exports Not Japan's Sole Engine") Obviously the Economic Minister is the one who is in the position to know a lot of things, but even if the effects were to be small, it would still not favor Japan's economy for yen to shoot up and the U.S. economy to wobble. It is apparent that we still need to keep our fingers crossed.