JIN-505 -- Tankan survey bottoms out as sentiment worsens

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J@pan Inc Newsletter
The 'JIN' J@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

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

This is what he had to say, according to the Financial Times:

“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 in the US counting system - 20 trillion yen? – well
anyway, somewhere close to $200 billion according to the FT's
conversion rate. 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 Wall Street Journal report,
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

Michael Condon

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Entrepreneur Association of Tokyo Seminar-Tuesday, April 7th

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

Martin established van der Architects in 2000 and focuses
on corporate interior design using a unique methodology he
created called WorkVitamins. This methodology helps his clients
leverage the work environment to motivate the staff and improve
productivity. His clients include Fortune 500 companies such as
Ernst & Young, ING Group, Societe Generale and WPP Group.
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