JIN-279 -- Tomorrow's Tankan Survey

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Commentary on the Week's Business, Technology and Cultural News

Issue No. 279
Wednesday, June 30, 2004

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@@ VIEWPOINT: Tomorrow's Tankan Survey

>> Plus: Mining the Middle Kingdom -- Tokyo's World Business Forum

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@@ VIEWPOINT: Tomorrow's Tankan Survey

Surging Japanese markets are geared for another bullish stretch ahead
as traders prepare for strong results in the Tankan survey of business

Analysts tell us that when the Tankan is published tomorrow (Thursday)
it will show a major jump in the confidence of Japan's leading
executives as a raft of solid-looking recent data on the recovering
economy filters into corporate thinking.

Eleven straight months of rising trade surplus -- culminating in a 35.5
percent increase in May -- is expected to produce a particularly good
showing for big manufacturers and exporters.

Toshihiko Fukui, Governor of the Bank of Japan (BoJ), offered the
market the strongest hint about the bank's forthcoming report. Over the
past weekend, Fukui noted that while he did not yet know the results of
the latest Tankan, "it will underscore the BoJ's view that the nation's
economy continues to recover."

Having firmly agreed last week to keep Japan's ultra-easy monetary policy
on hold, Fukui went on to address interest-rate watchers, who have
started to speculate that economic recovery may lead to a rise in rates.
"Our view on the economy and prices will not be influenced by the Tankan
results," he said. "Japan is still far from beating deflation, and it
is too early to talk about an end of the quantitative easing right now."

The key indices of the tri-monthly report have been on the rise for
three consecutive quarters. Last week, the benchmark Nikkei index closed
at a two-month high on a week of rises driven by investor hopes for the
influential survey. The number of senior corporate and government figures
that have now officially stated their belief in Japan's sustainable
recovery has reached what many observers say is "critical mass."
The Tankan is expected to show that Japan has reached the point at which
export strength converts into consumer confidence, and from there into
a resurrection of confidence among smaller businesses.

Norihiro Fujito, a senior investment strategist at Mitsubishi Securities,
told us that "investors are buying in the Tokyo market on expectations that
Japan's good economic fundamentals will likely culminate in the Tankan

The most watched-for areas of the report will be those that relate most
closely to household spending. On the subject of stronger domestic demand,
Fukui said that while employment was growing, workers' incomes had not
yet recovered to match the overall economic growth picture. But "a
positive impact" was expected to filter through to incomes from corporate

Investors looking for further signs of a domestic-led recovery are watching
the rapidly shifting structure of household assets, and the discernible
move towards risk-taking.

Recent data showed households held 1,411 trillion yen in assets, with
the outstanding balance of risk assets at 123.6 trillion yen, up 33
percent over last year's figures and the first rise in four years.

Some analysts, including Barclays Capital's chief economist, Mamoru
Yamazaki, believe that trend relates closely to overall consumer

Yamazaki notes: "This is because consumer psychology has brightened due to
the economic recovery, with individuals becoming more willing to invest
in risk assets."

Stay tuned.

-- The Editors

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>> Mining the Middle Kingdom: Tokyo's World Business Forum

Dartmouth College's Tuck School of Business hosted its sixth annual
World Business Forum at Keidanren Hall in downtown Tokyo earlier this
month, and the topic on the table was -- what else? -- the China

The daylong event featured five Dartmouth professors with expertise in
China/Japan/US trade relations moderating four panels, with topics ranging
from risk management to sustaining a supply chain in the world's most
populous market.

A number of leading executives from Japan and overseas gathered to
listen and learn, asking sometimes pointed questions in the Q&A sessions
following each panel. Difficulties with domestic shipping practices,
untrained labor pools, hoary government regulations and counterfeiting
were among the major headaches cited.

"Eight out of 10 Disney products [in China] are counterfeit," noted
Lu-Yen Wang, a Hong Kong-based Taiwanese who once headed the US
entertainment giant's Chinese operations. "But the company making
the fakes could be traced back to the government. Its chairman
was the mayor!"

Adding that the Chinese government had begun "cracking down" on
Taiwanese nationals in response to recent political events, Wang said
that he advises his Taiwanese employees to avoid joining any
organizations outside of the company.

Exasperated by the obstacles, one foreign businessman earnestly asked
for success stories, eliciting some grins and sighs from the audience.
After an uncomfortable pause, Patrick Powers of the US China Business
Council cited two -- Motorola and GE, both of whom "spent the money
upfront to do the training properly" -- providing a brief lesson in
how to mine the Middle Kingdom without getting maimed in the process.

-- The Editors

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Written and edited by Roland Kelts and
Leo Lewis (editors@japaninc.com)


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