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Corporate confidence weak
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August 28, 1996: 4:45 p.m. ET
Tankan survey indicates confidence in manufacturing fell last quarter
From Correspondent Bill Dorman
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TOKYO (CNNfn) - If business is a matter of confidence, Japan lost a little ground Wednesday when the Bank of Japan's quarterly survey, the Tankan, indicated that corporate confidence remains fragile.
The degree of confidence in major manufacturers has weakened, and there has been only slight improvement for major non-manufacturers since May.
Japanese companies that deal in basic materials -- everything from steel to textiles -- were affected most seriously, and are suffering from bloated inventories.
While the Tankan's downbeat tone did take some economists by surprise, the survey may have some residual positive effects.
"The Tankan was weak. That should tell the authorities 'don't do anything to cut the stimulus to the economy at the moment.' As long as that happens, we should continue to see the recovery come through," said Michael Harnett, a senior economist for Merrill Lynch Japan.
Predictably, the bond market moved higher on the news, and the yen jumped against the dollar before falling back slightly.
The Japanese stock market saw another day of sluggish volume, during which the Nikkei 225 index fell 200 points, about one percent.
Market players are still looking ahead to future economic reports.
"The key is going to be the turn-around in industrial production. When we see that, that will give some possibility of upward revisions in earnings in the second half of the fiscal year. I think the market will become much more relaxed again about the economy," said Jason James, market strategist for James Capel Pacific.
The silver lining in this cloud? Companies did increase their plans for capital spending, and most report an improvement in the labor market - they are not as concerned about having too many employees on staff.
If this trend continues, economists say it could lead to an increase in consumer spending.
After all, the key point for every Tankan report is its effect on interest rates. In this case, the message is very clear: don't expect the Bank of Japan to tighten rates anytime soon.
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