Tankan Survey Shows Improvement in Business Confidence

Strategic Insights -

A recent Tankan survey of business confidence in Japan has reported a positive outcome, with a third consecutive quarter of improvement. The survey, which polled over 9,000 companies, showed a significant increase in the diffusion index for large manufacturers, while pessimism among mid-size and small manufacturers fell. The results are seen as a relief for the Bank of Japan, which has faced pressure to ease monetary policy due to the appreciation of the yen.

Key Takeaways:

  • The Tankan survey showed a third consecutive quarter of improvement in business confidence, with the fastest rate of increase in 12 years.
  • The diffusion index for large manufacturers improved from minus 37 to minus 22, indicating that for every 100 companies that were optimistic, there were 122 that were pessimistic.
  • Pessimism among mid-size and small manufacturers fell 6 points to minus 40, and among small non-manufacturers 3 points to minus 31.
  • More than half the companies polled replied after the yen reached its recent high of Y103 against the US dollar on September 20.
  • Companies across the board said profits would rise 17.6 per cent in the year to next March, indicating that the Japanese currency's appreciation had not damped corporate sentiment.
  • However, companies in all categories said they planned to cut capital spending, with large manufacturers planning to invest 9.8 per cent less this fiscal year, the largest fall since 1993.
  • Mid-size and small companies also forecast a sharp drop in capital investment.
  • The authorities argued that the recovery was fragile and that a second supplementary stimulus package would be required.

Statistics:

  • The diffusion index for large manufacturers improved from minus 37 to minus 22.
  • Pessimism among mid-size and small manufacturers fell 6 points to minus 40.
  • Pessimism among small non-manufacturers declined 3 points to minus 31.
  • The yen reached its recent high of Y103 against the US dollar on September 20.
  • Companies said profits would rise 17.6 per cent in the year to next March.
  • Large manufacturers planned to invest 9.8 per cent less this fiscal year.
  • Mid-size and small companies forecast a sharp drop in capital investment.

Sources:

  • Financial Times Limited, 1999.