Japanese Big Groups' Confidence Declines

Reviewed by Hitoshi URABE

Article:
Japanese Big Groups' Confidence Declines
(By David Pilling and Barney Jopson) The Financial Times
http://news.ft.com/cms/s/
43ded2c2-4e42-11d9-9351-00000e2511c8.html

Comments:

Tankan, itself an acronym for the lengthy Japanese name representing "Short-term Economic Survey of Enterprises in Japan" is arguably one of the most closely watched economic indicators assembled and announced by public authorities, in this case the Bank of Japan. It is a simple summary of the sentiment of business corporations in Japan as to whether they feel the economic/business environment is favorable, or not, and the question is asked to over ten thousand companies across Japan. Within a month from the replies, the index is calculated by simply subtracting the number of companies pessimistic about the business environment from those that are optimistic, and expressed over the denominator of 100, as if there were a total of 100 companies responded.

Thus, a figure above zero means there are more who feel the economy is good than those do not, and the increase or decrease of the number illustrates the change of sentiments over time. It is released quarterly, but as the regular date falls on January 1 this time, the Bank of Japan announced the figures two weeks earlier, to avoid the hassle of the Holiday season, including that of Japan's New Year.

The real figures announced on Wednesday December 15 was, however, not so simple to comprehend.

The most watched figure within Tankan, the sentiment of large manufacturers, which is being considered to be in many ways represent the core of Japan's businesses, showed 22. This means among supposed 100 such companies, there were 22 more companies responded that the environment was good than those felt it to be adverse. The level of the figure, at 22, is not bad. In fact, it is comparable to the levels seen in early 1991, when most of the people were still optimistic, unaware of the collapse of the bubble that had begun. But considering the figure was at 26 three months ago, and this is a decline after seven quarters of continued increase, it is an indication of change of sentiment among businesses.

Normally, a brief examination of the Tankan could stop here, and start probing for backgrounds. This time, however, it is a little enigmatic as other sectors, such as non-manufacturing and medium-small enterprises showed increases, or at least unchanged figures from the previous quarter.

Because of this, the analyses were not so clear-cut among the media reporting the Tankan announcement. Most the headlines of the reports were cautious, just as in the article introduced above, to say essentially that "the sentiments of large manufacturers slipped," and not many were bold enough to say whether Japan's economy overall is good or bad.

The Bank of Japan before the Tankan report on a separate occasion commented, "the Japanese economy will remain on a recovery track despite some minor adjustment phases." Many analysts do concur with this view that the economy is taking a breath at this stage, while suggesting various factors needed, both domestic and foreign, for the economy to show solid growth again. Others, however, citing stronger yen and higher oil prices among other factors, have expressed concerns for the outlook.

The Japanese economy for the past two years has been driven by strong export while the domestic factor has been relatively slow in picking up. It seems to be the majority's view that now the external factors seem to be deteriorating, whether the domestic factors have acquired sufficient strength to sustain the growth would be the key.