Thursday, April 7, 2011

Japanese business confidence

Japanese business confidence

Before and after

by H.T. | TOKYO

Japan gets all the bad luck these days. Just as economic conditions were finally improving—at least for big business—after the long post-Lehman slump, the March 11th earthquake, tsunami and nuclear power-plant crisis has knocked them for six again. This is clear from an extraordinary release from the Bank of Japan on April 4th which compares results of the Tankan business-conditions survey for which responses were supposed to be submitted by March 11th. Using submissions from before and after that fateful day, it shows just how dramatically business confidence has worsened.

For example: in the manufacturing sector, the diffusion index for large firms who sent back responses before March 11th was seven, and its forecast was three (a positive reading means optimists outnumber pessimists). Those responding after the earthquake put current conditions at six, but their forecasts had fallen to minus-two. Medium-sized and small enterprises, which make up the bulk of those in the stricken Tohoku region, were less confident about the future than the bigger ones even before the earthquake. But since, small manufacturing firms, whose judgment of actual conditions was minus-six on the index, now have a forecast of minus-18.

This is hardly surprising. Companies face a looming energy crisis, with planned black-outs that may last into next years, as well as the devastation of parts of Tohoku, which Barclays Capital estimates affects 6-7% of Japanese GDP. On top of that is the spectre of radiation, which is making it difficult for exporters to ship goods abroad because of exaggerated fears in foreign ports, as well as putting off many foreigners from doing business in Japan. Add to this the danger of jishuku, the Japanese notion of self-restraint, which is leading to the cancellation of everything from hanami (cherry-blossom viewing parties) to baseball games, and you have dashed consumer confidence overlaid on waning business confidence.

Time, then, for the government to get out in front of its own people, and tell them to spend, and to get out in front of foreigners, and tell them that they shouldn't panic. As for companies, the surprise is, they are not more pessimistic. Let's hope that's the positive side of jishuku.

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