Japanese Consumers' Outlook Gains in Q3

Gains in stock prices and signs of economic recovery in Japan helped lift the Japanese Consumer Sentiment Index by 2.7 points in Q3, to 40.0, the highest level in over two years. This survey of about 5,000 Japanese households was taken September 15. The Nikkei 225 stock price index stood at 10712 the Friday before, up almost 20% from 8981 on June 13, the Friday before the previous survey, and up 40% from the cycle low of 7608 on April 28. Recent consolidation in the stock market has shaved this overall increase to 35%, but it's still a quite substantial gain.

Job market conditions are perceived much less negatively than in the prior quarters. Indeed, the increase in the "job situation" component, 8.9 points, is the second largest rise in the 21-year history of these data. Interestingly, actual employment looks less vigorous than might inspire such a large rise; while off its lows, employment has moved up very erratically, and businesses' assessments of jobs actually deteriorated in the Bank of Japan's third quarter TANKAN report, issued about three weeks ago. In contrast, unemployment is somewhat reduced, as the unemployment rate decreased 0.2 percentage point in August to 5.1%, its lowest since August 2001.

In interpreting these figures, it's important to point out that, while we use the words "improve" and "gain", they are only relative. These diffusion indexes remain below 50%, so pessimists still outnumber optimists. But the "pessimism margin" is narrowing, a necessary step for outright advances to develop.