I’ve been talking quite profusely about Japan lately because economic data have done what looks like an about-face. However, June’s quarterly Tankan survey, which is a closely-followed look at business confidence, increased less than expected, suggesting that the world’s second-largest economy may not be out of the woods yet.
Sentiment among large manufacturers increased from a record low of –58 to –48, below the Bloomberg forecast of –43. Large service firms saw only a 2 point increase to –29.
Though the improvement is welcome, given the upbeat news among manufacturers in recent days, the rise feels a bit empty. See Japan showing signs of life and Japan manufacturing on the rebound.
So what gives? We’ve seen huge increases in industrial production and the PMI is approaching the line between expansion and contraction.
Sharp cutbacks in production late last year and early this year have reduced inventories and companies need to restock shelves.
Additionally, China’s economy remains in better shape and may also lending support. But we are unlikely to a steep pick up in US and eurozone demand, a necessary ingredient for Japan.
And the jobless rate continues to rise, and the modestly less pessimistic view from major companies does not bode well for employment gains.
Consequently, 2Q is likely to be much better than 1Q in the GDP category but 3Q is a big question mark.
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