Tankan Survey Weaker Than Bearish Expectations

April 1, 2009

  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 2008f -4 -1 -25 -31 -19
Dec 2008a -24 -9 -29 -29 -24
Mar 2009f -36 -14 -48 -42 -38
Mar 2009a -58 -31 -57 -42 -46
Jun 2009f -51 -30 -63 -52 -52


Diffusion indices in the above table 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 actual made three months earlier. Results in March were mostly lower than predicted three months ago and even lower than recent street estimates in certain instances, for example a consensus that big manufacturers would print a score of -55.  The actual print of -58 represents a record low.  The worst big non-manufacturing readings were -41 in 4Q98 and -47 in 4Q93.  Small manufacturing produced a diffusion index of -60 in 4Q98 and -48 in 1Q94, while the lowest diffusion index for small non-manufacturers came in 3Q98 at -44.  The diffusion index for all firms is expected to crest further to -52 during the second quarter of this year.  These results are comparable, if not worse, than anything observed in Japan’s “lost decade,” which is not surprising since economic activity is contracting far more rapidly now than during any sequence of that earlier period.

Among other highlights of the latest business survey,

  • Dollar/yen is expected to average 97.18 this fiscal year, a 5% appreciation for the yen.
  • The difference between the percentage facing excess demand or excess supply for their products produced a score of -59 in March among large firms, a sharp deterioration from -34 in December, and little improvement is projected in the second quarter.
  • Inventorie
    of both finished goods and at the wholesale level are significantly excessive, which was already known from METI’s monthly industrial production figures.
  • Projected price changes, which had been hovering near zero, swung substantially into deflationary territory.
  • Among all firms, sales are projected to drop 5.7% in the coming fiscal year, more than a 3.3% drop in FY08/9.
  • Large manufacturers anticipate a 19.7% plunge in profits in the coming fiscal year after a 62.7% collapse last fiscal year.  All firms look for earnings to decline by 9.0% after a 41.4% drop last fiscal year.
  • All firms will reduce capex investment by 14.3% in FY09/10, with manufacturers intending to cut 20.0%, and other firms looking to reduce spending by 11.1%.
  • Productive capacity is very excessive, with a diffusion index of 36, up from 14 in December. No near-term improvement is anticipated.
  • The labor market too weakened sharply since end-2008.
  • The percent of firms facing easy financial conditions was surpassed by the percent facing tight conditions.  This index worsened 9 points to -15.
  • Lending attitudes of financial institutions have become quite severe, especially as perceived by large companies.
  • The commercial paper market is a mess.

The Bank of Japan has adopted elements of quantitative easing but continues to resist the extreme form of QE that was practiced for five years until early 2006.  The Tankan survey historically exerts substantial influence over monetary policy, because it provides the best combination of timely and comprehensive information about Japan’s economy.  It doesn’t hurt either that this is an in-house source of data.  Institutions tend to favor their own proprietary data bases.  Markets would nevertheless be shocked if officials soon went back to targeting excess reserves, since policymakers have been outspoken in claiming that its experience with doing that reaped limited stimulative effects and in fact created some permanent damage to Japan’s money markets. For now, officials will hope that collective policy changes around the world including more fiscal support in Japan will eventually set up a recovery in export-reliant Japan.  If no signs that such is happening emerge this spring, however, monetary officials may have not choice but to adopt a more aggressive form of quantitative easing.

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



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