Bank of Japan Business Survey Results Better Than Expected
June 30, 2010
The so-called Tankan survey, a quarterly snapshot of business confidence, conditions and expectations, has improved sharply and persistently since hitting bottom in the first quarter of 2009. Gains this past quarter not only surpassed what firms were expecting to occur when last polled three months ago but also exceeded recent projections by street analysts. This result is not completely shocking given the solid advances in industrial production, whose movement tends to correlate with shifting manufacturing readings in the central bank’s survey.
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. Over the last 15 months, the diffusion index for large manufacturers increased by 59 points, and big non-manufacturers had a cumulative rise in their score of 39 points. The readings for small-sized manufacturers and non-manufacturers respectively climbed by 26 points and 16 points, while all firms saw a net improvement of 31 points.
For the fiscal year ending March 2011, most classes of respondents are more optimistic than three months ago about their likely net earnings, sales and planned investment spending. For all firms, large or small, manufacturing or engaged in services, profits, sales, and investment are expected to rise 19.7%, 3.3%, and 0.5%. Participants in the survey also reported less excessive product supplies, reduced inventories, and lessening deflation.
A rate hike by the BOJ Policy Board nonetheless remains a very distant proposition. Projected results in the September Tankan made now indicate no further improvement is likely from here, and only big manufacturers would have a positive reading, albeit of just +3. That signals still more pessimism than optimism at end-summer. Like the Fed and ECB, Japanese monetary officials will need to take into consideration the coming tightening of fiscal policy, a worsening global economy, and plunging equity prices and government bond yields, all of which point to a marked slowdown ahead. The Nikkei fell 15.4% in the second quarter, and 10-year yields are at their lowest levels since 2003. Finally, the Democratic Party government of Prime Minister Kan is riding herd on the central bank, lobbying in public as well as private for more, not less, stimulus, lest deflation intensify again. That pressure comes in the context of a history over the last twenty years of the Bank of Japan erring several times in trying to tighten policy prematurely.
| 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 2010 | -14 | -14 | -30 | -31 | -24 |
| Jun 2010f | -8 | -10 | -32 | -37 | -26 |
| Jun 2010a | 1 | -5 | -18 | -26 | -15 |
| Sep 2010f | 3 | -4 | -19 | -29 | -16 |
Copyright Larry Greenberg 2009. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan, Tankan
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