June - Tankan Rises - 1st time in 2 years

In the Bank of Japan's quarterly "tankan" survey of business sentiment, the diffusion index for large manufacturers has risen to 1 in June -- the first time in two years a positive figure has been registered.

The mark was 15 points above the level recorded during the previous survey three months earlier, and it was the fifth consecutive quarter for the index to rise. The last time positive figures were registered was in June 2008, prior to the Lehman Shock that rocked the global economy.

The business confidence index among major non-manufacturers, meanwhile, rose 9 points to minus 5 -- the fifth consecutive quarter of improvement. The figures indicate that economic recovery that has been led by foreign demand and supported by exports to emerging countries is now spreading with a boost in domestic demand.

At the same time, however, concerns are also spreading over credit uncertainties in Europe, an economic slowdown in China and the U.S., and a strong yen, among other issues, and the path toward full-scale economic recovery remains rocky.

The diffusion index is calculated by subtracting the proportion of companies who say that the economy is bad from the proportion who say it is good.

It has been predicted that the index in the tankan survey in June would come to minus 4, but exports boosted the figure for manufacturers to a positive level.

"The economies of emerging countries were better than expected," a Bank of Japan official commenting on the index said.

Mazda President Takashi Yamauchi on July 1 said that sales between April and May were up 20 percent from the same period last year. Due to tax breaks for eco-cars and other factors, domestic sales increased 30 percent. The president, speaking at an event in Tokyo to introduce new vehicles, added that the company also saw sales increases of 20 percent in North America, more than 20 percent in China, and more than 40 percent in Southeast Asia.

In emerging countries, demand for flat-screen television sets has also surged, resulting in shortages of parts. As a result, Panasonic, which had planned sales of a 42-inch television set in June, has delayed release until September.

Responding to the recovery among manufacturers of vehicles, electronics and production machinery, capital investment -- which had been moving slowly -- is starting to pick up.

In the June tankan survey, major manufacturers indicated that they intended to increase capital spending in plants and equipment in fiscal 2010 by 3.8 percent compared with the previous year -- the first time in three years that the figure has been positive. The recovery, boosted by foreign demand and centered on export-related firms, is now also being seen among non-manufacturers.


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