Global| Jun 21 2006Japanese Business Confidence Diminishes Ahead of Possible Rate Hike
Summary
The recently instituted business survey by Japan's Ministry of Finance showed a distinct slowing in its second quarter results, reported today. The survey is just two years old, so there is obviously not much history. But these [...]
The recently instituted business survey by Japan's Ministry of Finance showed a distinct slowing in its second quarter results, reported today. The survey is just two years old, so there is obviously not much history. But these results hardly seem surprising with energy prices remaining high, and the Bank of Japan widely expected to engineer an increase in interest rates in the weeks ahead. 
The overall "business conditions" gauge dropped from 6.1% (balance, favorable less unfavorable) in Q1 to 1.8% in Q2. It had already retreated from 10.5% in Q4/2005. In the manufacturing sector, business conditions eased this quarter to 1.4% from 3.1% last period.
In Q2, the responding firms assessed "overseas demand" as stronger than "domestic demand". The domestic sector was rated positively for Q2 at a net +6.9% of firms, while overseas demand conditions stood at +9.5%. However, for the prior couple of quarters, the opposite was the case, as domestic activity was positive by double-digit amounts and higher than ratings on the foreign sector by 3 to 4 points. 
There is a hint in some of the associated detail, particularly sales, that Q2 may be subject to some seasonality; after companies rush to do business in the final quarter of their fiscal year, Q1 in Japan, the next quarter is something of a letdown. With so little history here, it's premature to make a conclusion about that, but it may help explain the Q2 slowdown.
Meantime, one other aspect of the survey results really stood out. For the first time in this survey, selling prices had a positive reading. It's only +0.6%, but even so, it is still another sign that the deflationary period in Japan may have ended.Nonetheless, rising costs took a greater toll on profits, so after a couple of favorable quarters in that item, it dipped back into negative territory.
| JAPAN: Large Firms, % Balance | Q2 2006 | Q1 2006 | Q4 2006 | Q2 2005 | Q2 2004 |
|---|---|---|---|---|---|
| Business Conditions | 1.8 | 6.1 | 10.5 | 0.9 | 7.2 |
| Manufacturing | 1.4 | 3.1 | 10.5 | -2.4 | 8.9 |
| Domestic Demand | 6.9 | 11.5 | 14.2 | 1.4 | 8.7 |
| Overseas Demand | 9.5 | 8.0 | 10.2 | 4.1 | 12.2 |
| Selling Prices | 0.6 | -3.2 | -2.2 | -3.9 | -5.8 |
Carol Stone, CBE
AuthorMore in Author Profile »Carol Stone, CBE came to Haver Analytics in 2003 following more than 35 years as a financial market economist at major Wall Street financial institutions, most especially Merrill Lynch and Nomura Securities. She has broad experience in analysis and forecasting of flow-of-funds accounts, the federal budget and Federal Reserve operations. At Nomura Securites, among other duties, she developed various indicator forecasting tools and edited a daily global publication produced in London and New York for readers in Tokyo. At Haver Analytics, Carol is a member of the Research Department, aiding database managers with research and documentation efforts, as well as posting commentary on select economic reports. In addition, she conducts Ways-of-the-World, a blog on economic issues for an Episcopal-Church-affiliated website, The Geranium Farm. During her career, Carol served as an officer of the Money Marketeers and the Downtown Economists Club. She has a PhD from NYU's Stern School of Business. She lives in Brooklyn, New York, and has a weekend home on Long Island.
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