(#゜Д゜)/英字新聞

Tankan encouraging, but economy still shaky
The Bank of Japan's latest Tankan survey of business confidence indicates a continued and steady improvement in business sentiment, gradually putting to rest concerns about a possible downturn in the economy.
Still, there are numerous tasks to be tackled in encouraging the economy, including the fight against deflation and the uncertain employment outlook. Given this, the government and the central bank should not mistake what needs to be done in the final stage of their efforts to put the economy back on the road to full recovery.
On Thursday, the central bank released its quarterly Tankan survey of short-term business sentiment among domestic companies in the three months through March. The diffusion index of business sentiment among major manufacturers rose 11 points to minus 14 from the previous quarterly survey for December. The figure represents the fourth consecutive quarterly improvement in the diffusion index, which measures the percentage of companies that consider business conditions favorable minus the percentage of firms that think otherwise. The margin of improvement also exceeds that of the preceding survey.
The latest Tankan--a key indicator used by the central bank in determining its new credit policy--shows major manufacturers have become the nation's first business sector to embark on a recovery path due to a rise in exports to Asian and other markets. This has favorably affected leading nonmanufacturers, causing that sector's business conditions to look increasingly hopeful. Corporate performance also is projected to take a turn for the better in the current fiscal year, ending extended periods of declining revenue and profits while returning to profitability.
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Sentiment far from positive
However, the diffusion index is still far from positive territory, indicating business sentiment remains depressed. In this respect, there is no cause for optimism.
It is disturbing to note there has been a scant increase in capital investment during the last quarter, a factor indispensable for putting the economy on the road to a self-sustaining recovery led by domestic demand. During fiscal 2009, leading businesses nationwide, including manufacturers, experienced a record 30 percent decrease in corporate investment in plant and equipment, while their capital expenditure plans for fiscal 2010 are expected to post minus growth.
It will be essential to encourage private sector investment in energy-saving, environmental and other growth fields. We hope the government hurriedly will devise specific measures to nurture promising businesses, including tax cuts on investment.
Meanwhile, dark signs can be seen in the government's pump-priming measures. Despite significantly improved business sentiment among carmakers in the latest Tankan, the automotive industry expects to see a decline in its confidence outlook in the months ahead. Car manufacturers seem to feel a set of government measures taken to encourage their industry, including the eco-friendly car purchase incentive program, is losing steam.
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PM's policy stifles recovery?
Second-tier, small and midsize construction companies--a sector that heavily relies on public works projects--have forecast a marked deterioration in business conditions for coming months. Their pessimistic outlook probably is attributable to a 20 percent cut in public works spending by the administration of Prime Minister Yukio Hatoyama. It is necessary to examine whether his government's "from-concrete-to-people" policy will throw cold water on an economic recovery.
Deflation is another major factor behind changes in the latest Tankan, as exemplified by the purchasing cost-based diffusion index. It is easy to see that a large number of corporations anticipate a rise in the cost of materials and other supplies they plan to purchase in the future, even though the firms do not expect to increase the prices of their products.
The ongoing price war among a number of corporations is combined with a fear that a possible increase in the prices of raw and processed materials could greatly undermine the corporate sector's profitability. In such an environment, it is necessary to keep a watch on international market trends.
Numerous corporations believe there are too many employees on their payroll, meaning there has been no growth in the number of job offers. This has been exacerbated by a continued drop in corporate workers' salaries.
The nation's economic expansion that started in 2002--the longest in the post-World War II period--did little to benefit family finances in terms of corporate profits being passed onto ordinary households. This contributed to slow growth in consumption and other facets of domestic demand. An ensuing sharp drop in exports dealt a blow to the nation's economy. A lesson should be learned from this.
What should this nation do to expand domestic demand by cashing in on its own export drive to benefit from overseas demand? The government and the private sector must join hands to exercise wisdom in crafting a new growth strategy.