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Home > Media Reiews > News Review Last Updated: 14:53 03/09/2007
News Review #165: October 2, 2003

Confidence rises among Japanese manufacturers

Reviewed by Hitoshi URABE

"Confidence rises among Japanese manufacturers "
(David Pilling) Financial Times


Bank of Japan announces Tankan report quarterly. The report is one of the most watched economic surveys for a number of reasons. One is that it is a summary of replies by close to ten thousand private corporations. Also, it is publicized with a relatively small time lag, of about two weeks from data collection. It should also be noted that the numbers in the report are very easy to comprehend, especially the business sentiment figures which are the core of the report. They are calculated by simple subtractions where the numbers of companies who feel the economy is bad is subtracted from those who feel it is good, and indicated on the base denominator of 100.

Thus the figure of plus 1 is that there were 1 percent of companies who feel economy is good more than those who feel bad. As reported in the article, the plus figure was the first time in almost three years. Although the favorable number was seen only in the big manufacturers sector, while the smaller companies seem to be still depressed, changing business sentiment of large companies could be expected to dissipate among the whole industry, if indeed the economy is picking up.

There is still a good reason to be skeptical, however. Reason for the improvement of sentiment by large manufacturers was due to largely the increase in exports and the prospect for stronger sales abroad. This means that Japan's economy has not picked up to the levels where it could sustain growth independently and it still relies heavily on exports.

When asking companies to submit their responses, Bank of Japan sets certain assumptions for the replies to be based upon. One of the key factors is the foreign exchange rate, and for compilation this time the figure was set at 117.99 yen to the dollar.

Since then yen has soared. Currently the rate of exchange is about 111 yen to the dollar, which would be a significant blow to manufacturers hoping to make sales abroad. If the rate stays at, or worse than, the current levels, there is still a possibility that the whole business sentiment could turn around.

Earlier in the week, unemployment figure reported for August fell to a two-year low of 5.1%, which may seem a good sign on the surface. But looking the report further would reveal that the number of those employed, had actually decreased during August. A viable interpretation of the report is, then, that there were considerably less people seeking jobs in August. It is further assumed that students who would normally seek summer time jobs had given up at the outset, recognizing finding jobs to be too difficult and did not even start looking for jobs. As the denominator of calculating the unemployment figure is the number of people actively seeking employment, it was the tough job market which discouraged people to look for jobs in the first place, that consequently brought about a lower unemployment figure.

It may not be necessary to be overly pessimistic, but if Japan's economy is recovering, it is still very shaky.

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