Gloomy ‘tankan’ surprises market

by Jun Hongo

Staff Writer

The pessimism reigning among large manufacturers remained firmly entrenched in the Bank of Japan’s quarterly “tankan” survey Monday, underscoring persistent concerns about the yen’s appreciation and Europe’s sovereign credit risk.

The business index for major manufacturers — companies capitalized at ¥1 billion or more — remained at minus 4 from the previous tankan in December. A negative number means there is more pessimism than optimism among those surveyed about the state of their business.

The tankan survey was “weaker than anticipated,” said Takashi Shiono, an economist at Credit Suisse.

Many expected the survey to show that confidence in the economy had grown since the BOJ took additional monetary easing steps in February that caused the yen’s exchange rate to drop to around ¥83 to the dollar. The yen had hit a record-high ¥73.35 in October.

The tankan results came despite signs of recovery in the U.S. economy and in manufacturers’ production lines in Thailand after last year’s flooding, highlighting Japan’s still-fragile economy.

Shiono pointed out that manufacturers might still be questioning the yen’s stability against the dollar, adding that the BOJ and the government make more effort to alleviate such concerns.

The tankan index figures are determined by subtracting the percentage of companies with bad business sentiment from those whose outlook is positive.

The quarterly survey covered 10,894 firms between Feb. 23 and Friday and drew valid responses from 98.6 percent of them.

The latest tankan showed that major automobile manufacturers are posting strong numbers, with their index increasing 8 points to 28 from last quarter. The index for the petroleum and coal sector also rose 13 points to zero.

Meanwhile, the readings for the nonferrous metals industry fell 11 points to minus 11 while the iron and steel industry also dropped, falling 7 points to minus 17.

The tankan showed that large manufacturers have a slightly optimistic outlook, predicting that the next quarter’s survey will see the index jump a point to post a minus 3 reading.

Sentiment among medium-size manufacturers deteriorated 4 points to minus 7 from the previous tankan, while small manufacturers fell 2 points to minus 10.