A Mixed Picture From the Bank of Japan's TANKAN

Results of the third quarter Tankan, the Bank of Japan's short term survey of business conditions of some 10,000 firms, released today, reveal, on balance, a subdued appraisal of business conditions and the immediate outlook. On the plus side, the excess of optimists over pessimists among large manufacturing corporations (the headline series) was 23%, the same result as in the June and March Surveys. This was slightly better than these firms had forecast in June and was better than recent consensus estimates. However, there are now fewer large manufacturers who are positive on the outlook for the next quarter. The excess of optimists over pessimists is 19% for the fourth quarter. The actual results of the survey and the forecasts made one quarter earlier are shown in the first chart.

Among the more cautious indications, are a decline in the excess of optimists in the non manufacturing sector from 22% in the last three surveys to 20% in the current survey. This was 2 percentage points below the June forecast. The actual results and forecasts for the non manufacturing sector are shown in the second chart. (To the extent that the correlation is a good measure of goodness of fit, the forecasts in the non manufacturing sector appear to be more reliable than those in the manufacturing sector.)

Unfavorable trends were also apparent among the mid sized and small manufacturing firms. So far this year, excesses of optimists over pessimists in these firms have declined steadily. In September, the excess of mid-sized firms was 10%, down from 17% in the fourth quarter of 2006; the comparable figures for small firms were 1% from 10%. These data are shown in the third chart.

The September Tankan revealed some lessening of tightness in the labor market. However, a preponderance of firms are still reporting an excess of insufficient labor supply as can be seen in the fourth chart. In spite of tight labor conditions, nominal wages have been declining on a year over year basis. It was only in August that for the first time this year, nominal wages for all surveyed establishments of five or more employees were higher than those of a year ago, albeit, a mere 0.1%, as can be seen in the fifth chart.