Japan 'tankan' shows recovery spreading-Fukuda

Reviewed by Hitoshi URABE

Article:
"Japan 'tankan' shows recovery spreading-Fukuda"
(Reuters) Forbes
http://www.forbes.com/markets/newswire/2004/03/31/rtr1319661.html
eng20040325_138413.shtml

Comments:

Bank of Japan's quarterly Tankan report is one of the most popular of economic surveys, and there are a number of reasons for this.

One is that it is quick. The report is compiled from the data gathered during the very recent five weeks, up to the day before the announcement. Next is that the base of survey is broad. Bank of Japan sends questionnaires to over ten thousand companies, and the response rate is an astonishing 95% or more. (This time it was 96.5 %.) Nevertheless perhaps the largest reason for the report's popularity is due the simplicity of it, and simplicity in two respects. The survey is a result of behaviors and sentiments of private corporations, being a reflection of activities and plans of real businesses running the economy. And the other is the way the results are summarized, especially the diffusion index to indicate business sentiments which the core of the report. Instead of fumbling with fancy adjustments such as seasonal factors, they are calculated by simply subtracting the numbers of companies who feel the economy is bad from that of those who feel it is good. For example, if an announced figure is, say, ten, 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 this time portrayed generally a comfortable picture, highlighted by the business sentiment figure, which showed improvement, again, for the fourth time in a row. (As the report comes out quarterly, it means for a whole year.) The most cited number, the diffusion index for large manufacturing companies, has improved, from 7 last December, to 12 this time, showing a respectable improvement in business environment.

Another significant item was the diffusion index of large Non-manufacturing enterprises, where the number reported was 5, which was the first positive figure in more than seven years, indicating the mood of recovery is spreading to various types of businesses.

Within the large manufacturers, the motor vehicles sector showed the largest positive figure at 42, which is the historical high for this industry sector, since when the oldest comparable data is available.

Although some express caution, as the method of the survey has been changed and this is the first time to apply it, for the legitimacy and technical contingencies relative to historical figures (note), the results do coincide with other more hard-core economic data that the economy is improving.

What remains to be seen, assuming that in fact the economy is improving, is whether the thrust could be sustained after the recent cessation of heavy intervention in the foreign exchange market to depress yen. Indeed this concern is apparently reflected in the forecast column of Tankan, where the sentiment has not really improved from the previous quarter. Another concern is whether the employment would really improve, especially observing the events in the US where employment is slow to take off despite generally strong economy.