The Japanese economic outlook is opaque. A Bank of Japan survey reports deteriorating business sentiment among major manufacturers in December. Clearly Europe's sovereign debt crisis, the historic rise of the yen's value and flood damage in Thailand are a cause of concern.
According to the central bank's "tankan" survey made public on Dec. 15, the diffusion index of major manufacturers dropped to minus 4, a fall of 6 points from the plus 2 in September — the first drop in six months. The index figure is attained by subtracting the percentage of firms having negative business sentiment from the percentage of those having positive business sentiment.
The Japanese economy is not necessarily without bright spots. The business sentiment index for major nonmanufacturers was plus 4, a rise of three points from September — marking improvement for two consecutive quarters. That's because this group is fairly insulated from bad economic conditions overseas and is profiting from firm demand due to reconstruction efforts in areas hit by the March 11 disasters.