Bank of Japan's June Tankan Improves Strongly

Reviewed by Hitoshi URABE

Article:
"Bank of Japan's June Tankan Improves Strongly"
(Reuters) Financial Times
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1087373394238

Comments:

For the past few months, people were told by professional economists and bureaucrats that Japan's economy is recovering. This notion was finally shown to be shared with the private sector, by the Tankan report publicized today.

Tankan, an abbreviation of contracted form of "Short-term Economic Survey of Enterprises in Japan" in Japanese - though literally everyone refers to it simply as Tankan - is a quarterly report compiled by the Bank of Japan. Tankan is one of the most watched economic surveys for a number of reasons. It is a summary of replies by over 10,000 private corporations. It is publicized with a very short time lag, incorporating reports received up to the day before publication. In addition, the numbers in the report are very easy to comprehend, as the key figures are calculated by simple subtractions where the numbers of companies who feel the economy is bad is subtracted from those who feel it is good, and indicated on the base denominator of 100. 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 the article reports, the diffusion index of business conditions as recognized by large manufacturers, which is considered to be most indicative of the reflection of sentiment of managers, jumped to plus 22 from 12 in March, the highest level for since August 1991 when the figure was plus 25, and the fifth straight quarter of improvement. As the other relative figures are generally showing accommodating results, the economy can be considered to be definitely improving.

There are still skeptics abound, however. Many point to the fact that the present recovery was caused by good export performance, which in turn was due to favorable economy in both the US and China. Unless internal demand picks up before the two countries lose steam, Japan's economy could stall again. Another concern is the possible rising prices of raw materials, which could drag down the profitability of manufacturers.

In fact, the fear by the companies is reflected in the Tankan, where the large corporate managers have replied, in their forecast for the near future, the index to be 21, compared to the current figure of 22, which means that they are not confident that the good economy would continue.

Another concern is that the index of overemployment for large manufacturers, which indicates the number of companies feeling overstaffed against those do not, reported the figure of 10, showing there are more managers sensing the need to decrease the number of employees. The figure has improved from 12 in March, and the latest unemployment statistic, announced just a few days ago for May showed 4.6%, the lowest in almost four years, but the real situation may not be so favorable.

Japan's economy may have indeed recovered. But sustaining that trend does not look easy.