Economic clouds clearing

The Bank of Japan’s latest quarterly “tankan” survey shows that confidence within the corporate sector is steadily improving. The survey calculates a business-sentiment index by subtracting the percentage of firms that are pessimistic about their business prospects from the percentage of firms that are optimistic.

Applied to big manufacturers, the index has improved for four consecutive quarters. For that group, the March index was minus 14, up 11 points from December. Brisk exports and the government’s economic stimulus measures have contributed to the improvement. This shows that Japan’s economy is steadily recovering. In contrast, the corresponding index in March 2009 was minus 58, a record low reached after plummeting 34 points from December 2008.

Preliminary exports statistics show that Japan’s exports in February increased 45 percent from a year earlier, propelled by brisk exports of cars and electronic parts to China and the United States. This is a sign of the global economy recovering.

The BOJ said that capital investment by big companies across all industries for fiscal 2010 is likely to be 0.4 percent less than fiscal 2009. Although this shows that firms remain somewhat cautious, the realtively small decline is a great improvement on the 6.5 percent decline reported a year before.

What is worrying is the low optimism among small and medium-size companies, although the index in these sectors also showed improvement from the last survey. For small and medium-size manufacturers the index was minus 30, an improvement of 11 points, and for nonmanufacturers it was minus 31, an improvement of 3 points.

Although the tankan survey presents good signs for the Japanese economy, the overall situation is that companies with a pessimistic outlook outnumber those with an optimistic view. In addition, the economy remains in the shadow of deflation. A rapid uptick in consumer spending is unlikely. Monthly wages declined for 21 consecutive months through February, and winter bonuses were nearly 10 percent less than a year earlier. The government needs to develop policies that will stimulate both the corporate and consumer sectors.