JIN 505--Sentiment worsens but are we at the bottom yet?

[jin at mailman.japaninc.com]

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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. 505 Friday April 03, 2009, Tokyo

Three months ago I wrote about how the Bank of Japan’s Tankan survey
had dropped by what was the steepest decline in more than three
decades. At that time, the index dropped 21 points, placing the
nation’s large manufacturers at minus-24 on the index. Looking back
along the survey’s history, there hadn’t been a sharper drop until the
1973-74 oil shock. That caused the index to drop 26 points.

This week the survey showed that the confidence of large manufacturers
was rated at minus-58. That’s a drop of 34 points. It was the steepest
drop and the lowest point ever seen in the Tankan survey, which the
BOJ began compiling it in 1974.

By now, everyone is fairly well aware of what’s going on: Overseas
markets have collapsed; Japan, of course export-dependent, is in deep
recession; and the high yen is cutting into profit margins. It’s a
simple equation. What is a little more complicated however, is the
solution. Prime Minister Taro Aso, defended his government’s decision
to spend until they can’t spend no more (or something to that effect).
German chancellor Angela Merkel criticized the LDP’s plan saying that
“spending more public money as part of a co-ordinated stimulus risked
creating an unsustainable recovery.” Aso, however, reminded the
chancellor that Japan had seen it all before.

This is what he had to say, according to the Financial
Times<http://www.ft.com/cms/s/0/137b240e-1e23-11de-830b-00144feabdc0.html>
:

“Because of the experience of the past 15 years, we know what is
necessary, whilst countries like the US and European countries may be
facing this sort of situation for the first time,” he said. “I think
there are countries that understand the importance of fiscal
mobilization and there are some other countries that do not – which is
why, I believe, Germany has come up with their views.”

The latest stimulus package, announced on Tuesday, was still somewhat
vague. The PM said it was still too early to go into detail but some
within the LDP have suggested that it may be as much as 20,000 billion
yen. This is according to the FT’s report. I’m not even sure what that
is - 20 trillion yen? – somewhere close to $200 billion, anyway. The
LDP has already started spending measures worth $120 billion. It is
the LDP’s typical answer to any economic malaise but the scale of what
they are proposing is mind blowing.

Some Japanese media have reported the package aims to create 60
trillion yen ($612 billion) worth of demand and two million jobs over
three years.

Increased domestic demand will go some way to improve manufacturers
sentiment but no doubt the eyes of giants such as Toyota and Nissan
will be focussed on what Obama’s stimulus package will be doing in the
US.

The rate of the contraction of Japan’s GDP was 12.1 percent in
annualized terms in the last quarter of 2008. The stats for GDP in the
first quarter of 2009 haven’t been released yet but according to this
<http://online.wsj.com/article/SB123854464642675997.html>
Wall Street Journal
report<http://online.wsj.com/article/SB123854464642675997.html>,
it is expected to contract by
double-digits again.

But it’s not all bad. The big manufacturers on the Tankan index
indicated that their sentiment would improve in June to minus-51.
Meanwhile, large non-manufacturers expect their sentiment index to
improve slightly to minus-30 in June from minus-30 in March.

Things won’t exactly be rosy, but hopefully we’ll see some improvement.

Michael Condon
Editor-in-chief

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Entrepreneur Association of Tokyo Seminar-Tuesday, April 7th

Speaker: Martin van der Linden-Founder and Principal
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Seminar Title: 'Design, Business and Creativity'

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Join us on April 7th to hear Martin's insights into the
relationship between design, creativity, and business.

Please sign up early while seats are available.

Date/Time: Tuesday, April 7th - Doors open at 6:30,
Seminar starts at 7:00
Location: The Foreign Correspondents' Club of Japan
Language: English
Website: http://www.ea-tokyo.com

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