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Economy in Brief

Japan Tankan Fails to Gain Pace
by Robert Brusca  December 16, 2011

Japan’s Tankan report is a disappointment with momentum being beaten back after a year of trying to maintain its balance in positive territory. The large company MFG tankan outlook dropped to -5 for 2012-Q1 from +4 in 2010Q4.

Most Non-MFG sectors did improve quarter-to-quarter as the Non-MFG reading registered +4 on the current index up from +1 in Q3. Seven of eight Non-MFG sectors improved on the quarter with retailing showing the lone slippage. But for the direction of the economy the performance of large manufacturing companies is the preferred gauge. The current quarter Tankan shows that gauge slipped to -4 from +2, in addition to the slippage in the outlook for MFG. Despite the relatively better performance of the current index for Non-MFG in Q4, the outlook for Non-MFG slipped to Zero for 2012Q1 from +1 in Q4, following the weakness in MFG lower.

For medium-size companies the current and MFG outlooks remained negative with an unchanged reading on the current quarter and much weaker outlook. But for Non-MFG the deterioration in Q4 was less than in Q3. The outlook for 2012-Q1 sees Non-MFG firms still with negative outlooks, but not as bad as they were for Q4.

Small firms generally saw steep declines for 2011Q4 Q1 continuing but the MFG and Non-MFG assessments improved a bit. The outlook for 2012 Q1 is worse for small firms with MFG firms seeing things much worse as Non-MFG firms see some slight improvement but in some really dismal readings. The small firms’ outlook for MFG is in the bottom 30% of its high-low range.

Looked at from a percentage of range basis, the various manufacturers area arrayed according to size with the larger firms doing relative better. For large MFG firms the outlook reading is in the 63rd percentile of its high/low range. Medium-sized MFG firm’s outlook stands lower in the 68th percentile while small MFG firms are lower still in their 70th percentile (lower 30th percent).

On balance Japanese firms assess conditions as quite poor and as receding across MFG and Non MFG sectors. Only for large Non-MFG firms there are substantial sectors seeing positive results in 2011Q4. But, in the outlook for 2012 Non-MFG firms lose this glow. For smaller firms conditions generally are worse.

Japan’s triple disasters hurt an economy that was recovering. So far the need and effort to rebuild has not brought better conditions to Japanese industry. Even the construction sector on its own is not showing much improvement form early in the year and remains with a substantial negative reading. Japan is being hurt by the slowdown in the global economy. More recently the flooding in Thailand has hampered some of Japan’s output since Japan has some industry located in and around some of the flooded Thai regions.

For Japan 2011 is a year best forgotten – but they never will forget it. The economy struggled, disasters struck, the yen jumped, globally financial fears were raised further pressuring the yen higher, global growth slowed-further impacting Japan’s exports, then Japan’s production in Thailand was hit with a flood. It is hard to image any more stresses to hit an economy in one year. Japan has only just achieved a cold shutdown of the Fukushima reactors. It is still finding evidence of radioactivity in places that are unexpected. Japan will continue to try to make its recovery in 2012 even as the global economy weakens and as Europe likely spins into recession.

Conditions for Japan remain harsh. And the outlook is still grim.

Tankan Results Large Enterprises
  Readings Averages %iles
  Q4-11 Q3-11 Q2-11 Q1-11 1-Y Avg Since Q3'03 Since Q1'04
MFG -4.0 2.0 -9.0 6.0 -1.0 -6.0 64.3%
NonMFG 4.0 1.0 -5.0 3.0 2.5 -2.5 66.0%
Total Industry 0.0 1.0 -8.0 5.0 0.5 -4.3 66.2%
Construction -8.0 -11.0 -15.0 -16.0 -9.5 -14.2 63.6%
Real Estate 3.0 0.0 3.0 4.0 1.5 6.7 35.1%
Wholesale 1.0 -2.0 -1.0 5.0 -0.5 -2.5 66.2%
Retail 10.0 14.0 10.0 10.0 12.0 -6.8 89.7%
Transportation 3.0 -2.0 -15.0 -3.0 0.5 -4.9 70.0%
Services 4 Biz 10.0 3.0 2.0 13.0 6.5 3.9 59.7%
Personal Serv 9.0 3.0 -10.0 1.0 6.0 3.0 66.7%
Restaurants & Hotels -2.0 -18.0 -40.0 -15.0 -10.0 -19.7 67.1%
  Q1-12 Q4-11 Q3-11 Q2-11 1-Y Avg Since Q3'03 Since Q1'04
 MFG-OtLk -5.0 4.0 2.0 2.0 0.8 -3.9 63.0%
NonMFG -Otlk 0.0 1.0 -2.0 -1.0 -0.5 -0.9 56.6%
All Industry-Otlk -2.0 3.0 0.0 0.0 0.3 -2.4 61.9%
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