By: Dr. Mike Campbell
Every quarter, the Bank of Japan commissions a survey of business confidence, the Tankan survey. The survey takes the pulse of 11000 businesses, so it should give a reliable picture of the mood of Japanese industry. The most recent survey shows that the level of business confidence has risen from a value of 8 compared to a value of 1 last quarter. The survey subtracts the percentage of businesses giving a negative appraisal from those giving a positive evaluation; consequently, a score of zero represents a neutral score.
In the depths of the turmoil following the financial crisis in early 2009, the Tankan survey recorded a record low score of -58; so a score of +8 is something positively bullish in comparison. However, the views expressed by the respondents predict that business confidence will turn bearish by the end of the year with an index of -1.
Businesses are naturally worried about the slowing of the Japanese recovery which has been reflected in sequential weaker growth figures and the consequences of the strong Yen. Despite the recent interventions, the Dollar has continued to edge lower against all of the major currencies. It is currently trading at 83.5 Yen which is close to the level it was at before the first Bank of Japan intervention.
A strong Yen makes Japanese exports more costly in foreign markets which suppresses demand. The survey indicated that Japanese business expects the Yen to weaken as a result of the Bank of Japan’s moves. They are predicting that the six month average value to the end of the financial year to be 89.66, a figure revised down from 90.18 in the previous survey. The Prime minister, Naoto Kan, is on record saying that he wanted to see the Yen at 105 to the US Dollar when he was finance minister.