Yes, Japan’s Tankan survey has legs and the rise in the various large company Tankan indices is ongoing. There is somewhat less vigor in the rise of the future improvement expected but it is still advancing at a solid pace and the current situation has improved more rapidly. The fly in the ointment this quarter is that despite ‘improved confidence’ the plans for capital expenditure have been cut back. In the end that casts some doubt about the rise in confidence itself. Firms with profits still under pressure are acting to conserve cash instead of aggressively re-deploying themselves for growth ahead. That kind of behavior could help to torpedo recovery even as survey respondents say that things are getting better.

The table above shows that manufacturing, wholesaling and personal services are best sectors in terms of the percentile standing of their respective indices. Even so these sectors are in the bottom 30th percentile of their respective ranges or lower. Non MFG as a whole is in the bottom 13 percentile of its range. Manufacturing’s outlook, at a raw reading of -21, is in the 41st percentile of its range. That is somewhat better, than the current assessment but still far from good.

Medium sized firms assess their MFG index as in the 23rd percentile of its ranges for small enterprises it is much worse as they stand in the bottom 7th percentile of their range. The nonMFG percentiles for the medium and small enterprises are comparable to the Tankan Large Company readings for Non MFG – very weak.

Yes Japan has made progress. But the current state of business is still poor even though it has improved. While the expected improvement is at a slightly better level than the assessment of current conditions, firms continue to react to the recession instead of planning ahead for recovery. As a result, one of the great forces of recovery has yet to be unleashed- optimism. Japan’s recovery remains cautiously guarded and in the end that will be a drag on its momentum. Until firms see the need to invest for the future and as long as they cut and hack at existing spending plans the look will remain touch and go.