Bank Of Japan Tankan Survey Shows Business Confidence Holding Steady, Easing Pressure On Policymakers

Business confidence in Japan is holding steady, according to Bank of Japan’s Tankan survey released Monday. The headline index for large, medium and small manufacturers remained unchanged since September, defying forecasts that predicted a drop.

The Tankan survey, which is issued four times a year, samples more than 10,000 companies and has a response rate of almost 100 percent. The indexes are derived by subtracting the number of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber the pessimists. The maximum possible reading is +100 and the minimum is -100.

In the latest survey, large manufacturing companies gave a reading of +12, while the reading for large services companies held steady at a 24-year high of +25, suggesting that Japanese firms have been able to shrug off sluggish consumption at home and the recent economic weakness in China.

The survey also found that big Japanese companies plan to increase capital expenditure in the fiscal year ending March 31 by 10.8 percent, which is largely unchanged from the previous survey.

“Capex forecasts seem strong, but companies are lowering plans for the first half of the fiscal year and raising spending plans for the second half of the fiscal year, which suggests some companies are delaying investment,” Hidenobu Tokuda, a senior economist at Mizuho Research Institute, told Reuters. “This reflects concerns about emerging markets. This is also due to concerns about the domestic economy, because consumer spending has been somewhat disappointing.”

A recent run of weak economic data -- pointing to decline in wages and consumer spending -- has not only cast doubts over the central bank’s outlook that a solid economic recovery will accelerate inflation to its 2 percent target by early 2017, but has also raised questions over the viability of the much-touted “Abenomics” approach to recovery, which involves pumping large quantities of cash into the economy to boost spending.

In such a scenario, the latest data, coupled with a recent revision of Japan’s gross domestic product numbers that showed the country had avoided a technical recession in the third quarter, would offer some relief to policymakers. The data also suggest that the Bank of Japan is unlikely to change its monetary policy and expand its massive stimulus package in the next few months.