The Q1 Tankan results for large Japanese enterprises show a steady manufacturing sector and a slightly improved non-manufacturing sector. Medium-sized firms also show no MFG sector improvement with an even larger non MFG sector improvement but on weaker absolute readings. This process seems to go down the food chain as the small enterprises have even weaker Tankan assessments but show more MFG improvement and a larger improvement still among nonMFG enterprises than their larger counterparts.

Putting the ‘raw’ Tankan readings aside, if we place the MFG sectors with each one’s values arrayed by firm size in its range of values the large enterprises are the relative weakest and the small and medium enterprises are doing relatively better. For Non MFG, the relative best-off firms are the smallest followed by the medium firms with the large firms the relative weakest. So it is typical for the larger firms to have the stronger raw readings. But the smaller firms are currently stronger relative to the large company readings than is typically the case. Again to make this assessment we are going beyond the raw readings which show the opposite to see how each sector stands in its own ranking of historic values.

The improvement in the Tankan is seen mostly outside of MFG and for the smaller firms. And when we turn to the outlook all the above patterns repeat. The large firms have highest current standings but the small firms grade out as better relative to their historic norms. Regardless of firm size the biggest improvement quarter to quarter is from the non-MFG sector.

Japan is not being driven especially by its larger firms or by its manufacturing sector. While the yen has moved down off its strongest levels and Japan is recovering from its disasters of last year, exports are still not back in gear as global demand has been sputtering, globally.

Japan’s construction sector has showed signs of picking up and the post disaster rebuilding effort has been slow-going. But as it finally gets in gear it may provide more of a boost for the economy. Oddly the small and medium-sized firms seem to be seeing revival first. But that is not surprising with Japan’s usual economic drivers still out of whack.

The forecasts in the Tankan show that there is improvement in train- or at least that it is expected. But it is paltry improvement and it comes after a year and one half of flat-lining by the large firms. Even so the Tankan outlook index only represents values that are part way back from their before-the-global-financial-crisis-levels. There is still a very long way to go.