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The Bank of Japan’s latest quarterly survey of business sentiment has shed light on two important aspects of economic fundamentals.

The “tankan,” released Dec. 13, provided a gloomy assessment of the economic recovery while offering fresh evidence that Japan’s major manufacturers remain committed to bold capital-spending plans.

The diffusion index for major manufacturers, the main portion of the survey that measures their assessment of business conditions, showed no improvement since the previous survey in August.

The tankan failed to show an improvement in business sentiment for the first time in nearly two years.

The survey also found that firms were beginning to adopt a cautious tone on economic prospects — also a rare development in recent years.

Despite the cautious assessment, however, the survey also found that many manufacturers are still gearing up for increased spending on plant and equipment.

This was with good reason.

The survey was conducted between mid-November and early December, when the gloom regarding political prospects in both Japan and the United States deepened and the downtrend in stock prices continued unabated.

Against this backdrop, few managers offered a positive assessment of the economy.

Despite this unnerving news, however, businesses cannot ignore further capital investment if they intend to survive increasingly fierce global competition.

The survey findings can be taken to indicate that one need not paint an excessively pessimistic picture of the economy. Indeed, a close analysis of the survey shows that no significant fall in consumer spending is in the pipeline, though some falls in exports are inevitable.

As long as manufacturers remain committed to positive capital investment plans in information technology and other key sectors, there appears little likelihood that Japan will head back into another economic slowdown.

In short, the tankan has provided assurance that there will be no serious deterioration of economic fundamentals in the foreseeable future.

It has also provided assurance that the slow but steady economic recovery remains solidly in place.

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