JIN-494 -- Tankan survey says that manufacturers' confidence... tanks

Wed Dec 17 18:54:32 JST 2008

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J at pan Inc Newsletter
The 'JIN' J at pan Inc Newsletter
A weekly opinion piece on social, economic and political trends
in Japan.
Issue No. 494 Wednesday December 17, 2008, Tokyo

I haven't seen a more illustrative graph than the Financial Times' one
for the latest Tankan survey. When you look at it, it appears
reminiscent of a plane that has spluttered out of fuel after climbing
to a decent altitude, and then headed straight into a nosedive. The
graph for the previous quarter's survey looked pretty dismal but if
you add another 20 degrees to the angle of the descent, that's how it
looked.

The survey, released on Monday by the Bank of Japan, placed the
confidence of the nation's large manufacturers at minus 24. The drop
from the previous quarter was 21 points which makes it the sharpest
decline in more than three decades. And let's put that in context –
that was caused by the 1973-74 oil shock at that time Tankan's
headline index dropped 26 points. During the same quarter a year ago
manufacturers' confidence was rated above 20 points. This is a
seven-year low and I'm guessing that 7 years ago, in the same quarter,
September 11 happened, right?

You don't have to be a genius to figure out what was behind the drop,
global financial turmoil, the recession which everyone had seen coming
a mile away and the drying up of credit all contributed. The strong
yen and the devastation in foreign markets couldn't have helped
either.

Following the BOJ's announcement, the government immediately began
stepping up pressure on the central bank to do something to bolster
economic growth. Finance Minister Shoichi Nakagawa publicly called on
the BOJ to do… well something.

"I hope the BOJ considers economic conditions and the liquidity
problems and reaches a conclusion" on what to do, said Nakagawa on
Tuesday in Tokyo.

Mary Iwashita, chief market economist at Daiwa Securities SMBC told
Bloomberg that Prime Minister Aso was making a kind of last ditch
attempt to prove his worth.

"Aso wants to show his leadership by implementing monetary and fiscal
policy at the same time…He's turning to the central bank as a last
resort, as fiscal constraints and his weakening political position
limit his options," she said.

Last week Aso announced the details of his second economic stimulus
package saying that he would spend more to help the unemployed as more
workers are laid off – particularly at some of the large
manufacturers. Toyota has announced it will lay off a lot of temporary
workers while Sony said it would have to sack something 8000
full-timers and 8000 others. This was worldwide mind you, but it's
indicative of what some of the large exporters are doing at the
moment. The government also said it would buy commercial paper as part
of the package to help funding for businesses.

Aso pledged 4,000 billion yen ($44bn) in spending and tax cuts and
Y3,000 billion yen in promised credit for companies. He also raised
the limit for public fund injections for financial institutions to
12,000 billion.

The Nikkei also reported on Tuesday that the budget for next year
would be a record 89 trillion yen ($982 billion) so I'm guessing that
there will be more stimulus packages to come.

Of particular note within the Tankan survey was the automotive sector
which dropped 46 points from the previous quarter. While Japan's Big
Three are in a hell of a better position than their American
counterparts, they are hurting. This was definitely one of the hardest
hit sectors of all the manufacturers. The lucrative North American
market that had enabled particularly Toyota to be so profitable in
recent years has dried up as American families go into damage control.

But it could have been worse, according to Julian Jessop, of Capital
Economics. He was quoted in the Financial Times as saying that the
Tankan results were actually better than expected, but he said that
large manufacturers expected sentiment to decline even further in the
next quarter…

Michael Condon
Editor-in-chief

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