Takenaka Says Tankan Confirms Japan's Steady Economic Recovery

Reviewed by Hitoshi URABE

Article:
"Takenaka Says Tankan Confirms Japan's Steady Economic Recovery"
Bloomberg
http://quote.bloomberg.com/apps/
news?pid=10000101&sid=aFeORhZgrJ90&refer=japan

Comments:

Some hard-line economists tend to downplay the Tankan report, as it is only a summary of naive impressions of amateurs - amateurs in the sense that the respondents have no academic background in economics. People living in the real world, however, respects it, perhaps not so much in expectation of scientific analyses but to check their own evaluation of the state of the economy against the views of the respondents who are business executives and owners really running the engine of the country.

As reported in the article, the most watched figure within the Tankan, the diffusion index of business conditions as recognized by large manufacturers, has increased to 26 this time, from 22 reported in July.

Tankan is a contracted form of "Short-term Economic Survey of Enterprises in Japan" in Japanese. It a quarterly report compiled by the Bank of Japan and summarizes replies from over 10,000 private corporations. The key figures are calculated by simply subtracting the numbers respondents who feel the economy is bad from those who feel it good, and indicated on the base denominator of 100. So, in this month's case, there were 63 respondents who say economy is good, and 37 who do not, out of the assumed total of 100.

What the article also reports is that the stock market rallied because the reported figure was better than expected. What could have been the concern, then, to suspect the number would be worse than what it turned out to be?

Although Japan's economy had showed significant recovery earlier in the year, some analysts has recently been expressing concerns in going forward. The news came out in mid-September of Japan's 2nd quarter GDP growth being revised downward from the previous announcement could have been a hint of possible weakening of the growth momentum. The recovery of Japan's economy was supported by export and demand for digital equipments, including flat-panel TV's for watching the Olympics. It had been envisaged that domestic demand would pick up before the export would lose strength, assisted by the reinforced financial sector. But this has not materialized. During the while, the US economy seems to be slowing down.

Such gloomy signs may have made people a little nervous, which resulted in an increase of 4 points only this time, where the increase was 10 points on the report 3 months ago. Tankan reports there are significantly more people who are confident of the present situation than not for the moment, but unless new factors to rev up the economy appear, or the policymakers come up with something, sustaining the positive trend may not be easy.