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Friday 02nd of July 2010
July 1, 2010    

BoJ Tankan survey reveals sentiment at two-year high

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by Kay Murchie

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

The Tankan index revealed business confidence among major manufacturers had picked up for the fifth consecutive quarter, rising one point in June from -14 in March.

The Tankan, which surveys 10,000 firms, measures the percentage of companies that think business conditions are good, minus those that believe they are bad.

The Japanese economy was one of the first to emerge from recession - in the second quarter of last year. The recovery has been driven by exports but recent figures suggest the domestic picture remains weak.

Figures yesterday revealed unemployment surprisingly edged higher from 5.1% in April to 5.2% in May.

Meanwhile, the survey which reached the highest level in two years, comes at a time when the world’s second-largest economy battles with deflation and a high level of debt.

Last month, official figures revealed Japanese core consumer prices fell 1.2% in May from a year earlier – representing the 15th consecutive monthly decline that the world’s no.2 economy has been in deflation.

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.

Deflation was a problem for Japan during its so-called “Lost Decade” in the 1990s in which the economy struggled with falling prices.

Another major issue for the Japanese economy is the country’s debt – which at nearly 230% of GDP is the highest of any industrialised nation.

The debt is the result of decades of stimulus spending and low tax receipts.

Japan’s new Prime Minister, Naoto Kan, has warned of tough measures in order to reduce the debt mountain – or risk a Greece-style debt crisis.

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