Bank of Japan Tankan Survey Confirms More Confident Corporate Mood

March 31, 2010

The Bank of Japan quarterly survey of businesses, known as the Tankan, depicted significantly better conditions than three months ago.  The readings were also higher than predicted in the December survey but in line with what analysts forecast recently.  Big manufacturers and large nonmanufacturers had identical readings, showing improvements of 44 points and 17 points, respectively from the depths of the recession a year ago.  Smaller firms continue to face a more difficult situation than bigger ones.  Small firms anticipate a worsening landscape in June than now, while large firms look for additional improvement.

Diffusion indices in the table below were derived by subtracting the percent of respondents calling business conditions “unfavorable” from the percent characterizing such as “favorable.” The abbreviations for big manufacturers and big non-manufacturers are Bm and Bnm, while Sm and Snm designate small-sized manufacturers and non-manufacturers.  “All” signifies all big, medium, and small firms in the survey.  The suffix “a” stands for actual, and “f” signifies a forecast of the diffusion index made three months earlier.

This survey introduces a new fiscal year, FY10 starting today, in its sales, earnings, and investment projections.  All firms collectively anticipate another drop in investment spending, albeit by just 3.9% after a 17.8% plunge last financial year and a drop of 6.4% in fiscal 2008.  Profits and sales are forecast to rise by 12.6% and 2.1% in the coming fiscal year.  Among large manufacturers only, investment is expected to dip just 0.9% after a 30% decline last year, and profits and sales are projected to increase by 49.3% and 3.9% in the new financial year.

The excesses of product supply, labor, and inventories are getting whittled away.  However, deflation is not fading as quickly.  The diffusion indices for output prices, where such represents the percent seeing a rise minus the percent anticipating a drop printed in the latest survey at minus 19 for big firms and minus 29 for smaller ones, representing increases of just 3 points and 4 points from December’s results.  Moreover, respondents projected that in June those two indices would be at minus 19 and minus 31.  Dollar/yen is assumed to average 91.0 in the coming fiscal year.

The Bank of Japan meets next week but is unlikely to implement further stimulus.  Today’s report complements other information that economy has improved even if it remains fragile.  The Policy Board has doubters, who do not believe quantitative easing will mitigate deflation and worry about collateral damage to market functionality and asset price behavior.  The vote at the March meeting to double fixed-rate operations as a way of keeping long-term interest rates low drew dissents by Noda and Suda.

  Bm Bnm Sm Snm All
Dec 1998 -49 -39 -56 -43  
Dec 1999 -17 -19 -32 -28  
Dec 2000 10 -10 -16 -23  
Dec 2001 -38 -22 -49 -39 -40
Dec 2002 -9 -16 -33 -36 -28
Dec 2003 11 -9 -13 -28 -15
Dec 2004 22 11 5 -14 1
Dec 2005 21 17 7 -17 5
Dec 2006 25 22 12 -4 10
Dec 2007 19 16 2 -12 2
Mar 2008 11 12 -6 -15 -4
Jun 2008 5 10 -10 -20 -7
Sep 2008 -3 1 -17 -24 -14
Dec 2008 -24 -9 -29 -29 -24
Mar 2009 -58 -31 -57 -42 -46
Jun 2009 -48 -29 -57 -44 -45
Sep 2009 -33 -24 -52 -39 -38
Dec 2009 -25 -21 -41 -34 -31
Mar 2010f -19 -18 -40 -41 -33
Mar 2010a -14 -14 -30 -31 -24
Jun 2010f -8 -10 -32 -37 -26

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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