BoJ Tankan survey reveals sentiment up in Japan

The Bank of Japan’s closely watched quarterly Tankan survey has revealed an improvement in business confidence in Japan

Today’s figures will add to the belief that the worst is over for the world’s second largest economy. Earlier this week, the Ministry of Economy, Trade and Industry announced that industrial production was up 5.9% in May from a month earlier.

Meanwhile, the Tankan survey revealed that business sentiment in Japan has improved for the first time in over two years.

The headline index for big manufacturers’ sentiment was -48 in June, an improvement on the record low of -58 seen in March.

Many analysts are expecting that economic output for the second quarter will show growth of 0.4% after four consecutive quarters of contraction.

Japan’s export-dependent economy has been hit by a slump in demand for its products overseas, particularly cars and electrical goods.

However, signs that Japan may be emerging from its worst recession since the Second World War come as factories are springing back to life.

However, the Tankan survey did show that overall, firms remained negative about future prospects.

In addition, rising unemployment is expected to see consumers continue to tighten their purse strings.

In related news, there are fears that the Japanese economy could be heading for deflation after figures from the Ministry of Finance revealed last week that Japan’s core consumer price index (CPI) fell 1.1% in May compared with the same month last year - the most since records began almost forty years ago.

A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices.

The Japanese economy suffered its worst contraction on record in the first quarter of 2009, contracting at an annualised rate of 14.2%.

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