Japanese Business Survey Soft But Better Than Expected

July 1, 2008

Business conditions weakened during 2Q08, as they had done in 1Q08 and are expected to do in the third quarter.  This was true for varying-sized firms and for the manufacturing sector and the rest of the economy.  One drag is the stronger trajectory of the yen, which is expected to average 102.74 per dollar this fiscal year, 6.3% above the expectation of the previous survey in March.  The outlook for corporate earnings has darkened considerably.  Such are projected by all firms to drop 4.4% this fiscal year, a 6.8 percentage point drop from the rise of 2.4% anticipated three months ago.  However, the diffusion indices for business conditions were higher than generally expected, and planned investment spending shows more resiliency than one would expect to be associated with such low profits.  Large manufacturers plan a 6.7% rise in investment.  For all firms, investment is projected to dip 1.4% as a 3.5% decline among non-manufacturers outweighs a 2.4% increase in manufacturers.  The diffusion indices for business conditions are shown below.  Those figures represent the percentage claiming that conditions are favorable minus the percentage for whom conditions are unfavorable.  The consensus of Street forecasts was that the index for big firms would drop to +3 in manufacturing and +8 in non-manufacturing.  Analysts were expecting small manufacturers to have a -13 reading and other small firms to punch in at -21.  Even if investment provides more economic thrust than thought, consumption will be soft.  Once again, it will be up to exports to decide just how firm or fragile growth turns out in 2H08. 


  12/07 03/08 06/08 09/08-f
Big Mf’g 19 11 5 4
Medium Mf’g 10 5 -2 -5
Small Mf’g 2 -6 -10 -15
Big Nonmf’g 16 12 10 8
Med Nonmf’g 2 -3 -5 -10
Small Nonmf’g -12 -15 -20 -27
All Firms 2 -4 -7 -12



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