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Japan's `tankan' survey reflects steady optimism

Recent global market turmoil and uncertainty about the US economy haven't dented confidence at Japan's major manufacturers, a closely watched Bank of Japan survey showed yesterday.

The central bank's quarterly "tankan" survey of corporate sentiment showed the key confidence index for large manufacturers stood at 23 last month, unchanged from June. Analysts had predicted the index would fall to 21 amid worries about the global fallout from problems in the US credit market.

The figures signal that Japan's big exporters, which drive the world's second-largest economy, are weathering the volatility better than many had expected.

"The figure underlined the Japanese economy's firm footing -- strong exports and production at home," said Hiroshi Shiraishi, an economist with the Lehman Brothers Inc. "That offset some concerns over the global market turmoil."

Shiraishi said it would take a few more months to see whether the credit woes will further negatively affect the US economy, Japan's biggest export market.

Japan shares rose on the support of the tankan survey. The NIKKEI Stock Average of 225 issues closed at 16,845.96 points on the Tokyo Stock Exchange yesterday, up 60.27 points, or 0.36 percent, from Friday.

The tankan's sentiment index measures the percentage of companies reporting that business conditions are better minus those reporting that conditions are worse. The higher the number, the greater the portion of companies that are optimistic.

But the index for large non-manufacturers, meanwhile, deteriorated to 20 last month from 22 in June, matching forecasts by economists. All told, the tankan tallies results from more than 10,000 companies.

Those mixed results probably aren't enough to dramatically alter the prevailing view that the Bank of Japan is unlikely to raise interest rates imminently given the economic instability caused by the credit market crisis, analysts said.

Shiraishi said the latest tankan report was somewhat positive for a hike in interest rates by Japan's central bank, but it was "not the decisive factor" that will enable it to act anytime soon.

"Although large makers were faring well ... the smaller firms' confidence turned worse, with a view of uncertainties ahead," Shiraishi said.

Among small manufacturers, the sentiment index fell from 6 to 1, its lowest level since March 2005.

Last month, the Bank of Japan left its benchmark interest rates unchanged at 0.5 percent. Bank of Japan Governor Toshihiko Fukui has said the downside risks for the US economy and instability in global markets had to be monitored closely before raising interest rates.

The Bank of Japan's next policy committee meeting is set for Oct. 10 and Oct. 11.

The tankan survey also showed that large manufacturers and non-manufacturers planned to increase business investment by a combined 8.7 percent in the fiscal year that began in April. That was higher than the 7.7 percent increase in June's estimate.
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