Tankan Results Add to Gloomy Economic Outlook for Japan

The Bank of Japan’s most recent quarterly survey of business conditions, the Tankan, is further evidence that the Japanese economy is losing momentum. A key statistic in the survey is the appraisal of actual business conditions expressed by large manufacturing establishments. This statistic has tended to lead trends in Japan’s Gross Domestic Product as can be seen in the attached chart.

Large manufacturing establishments reduced their appraisal of actual business conditions from -9 to -10, the first decline since the fourth quarter of 2001. The major sectors of manufacturing, basic materials and processing declined respectively from -8 to-9 and from -11 to-12. Manufacturers of motor vehicles have been positive, but the margin of positive over negative respondents fell sharply from 28 to 16.