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Japan's Tankan shows modest gain
By Geoff Hiscock
JAPAN, Tokyo (CNN) -- Japan's closely watched Tankan survey shows business sentiment improved in the September quarter, but the gain fell just short of expectations. The quarterly survey, released Tuesday morning by the Bank of Japan, shows the big manufacturers' diffusion index improved to minus 14 from minus 18 in June. But the four-point improvement was far less than the 20-point jump in June. The Japanese stock market showed no enthusiasm for the result, the Nikkei dipping again to be down almost 2 percent in early trade. Also driving share prices down was another fall on Wall Street Monday. The Tankan's sentiment or diffusion index measures those who report favorable business conditions, against those who see unfavorable conditions. The survey, which covers 8500 manufacturing and non-manufacturing enterprises across Japan, is seen as a key indicator of the health of the world's second-largest economy. Growth in June
After four quarters of contraction, Japan's gross domestic product finally grew by 0.5 percent in the June quarter, data released by the Cabinet Office on August 30 showed. (Full story) But as Japan struggles to consolidate its tentative recovery, business is having to deal with fears of a possible spike in oil prices from a war in Iraq, a stronger yen and slower export growth because of the slowdown in the United States. (Full story) Domestic factors weighing on the economy include deflation, limp consumer spending, a high jobless rate and worries about the mountain of bad debts afflicting Japanese banks. But the banking sector's problems saw some light Monday, with the decision by Prime Minister Junichiro Koizumi to dump Financial Services Minister Hakuo Yanagisawa and replace him with Economy Minister Heizo Takenaka. (Full story) Yanagisawa has been the most vocal opponent of using public funds to save the banking sector, and his removal is seen as an aggressive step by Koizumi to head off a banking crisis. Coherent approach
Professor Kazumasa Iwata, director-general of economic assessment and policy analysis in the Japanese Cabinet Office, told CNN that the Tankan result confirmed the government's assessment that the economy bottomed out in the March quarter and was now "gently increasing". He said the new cabinet, with Takenaka in the dual role of Economy Minister and Financial Services Minister, was now in a position to carry out a "coherent" macro-economic approach to Japan's problems. Tuesday's Tankan survey predicts business conditions for large manufacturers will continue to improve, with the diffusion index forecast to be at minus 11 in the December quarter, a gain of three points. In the large non-manufacturing sector, the September index improved to minus 13 from minus 16 in June, and is tipped to be at minus 11 in December. But the outlook remains difficult for medium and small enterprises. While medium-sized manufacturers showed a six-point gain to minus 22 in the September quarter, the situation for non-manufacturers, worsened, losing two points to minus 28. Among small enterprises, manufacturers improved by four points to minus 37, while non-manufacturers eased one point to minus 38. For all enterprises, the index showed a two-point gain to minus 30 in September, with an expectation of a small rise to minus 29 in December.
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