Japan’s Manufacturers See A Light In The Distance

The closely watched Bank of Japan’s tankan survey for the second quarter showed improved confidence among big manufacturers which most likely is a result of improving exports. The global economy may be recovering enough so that the Japanese export machine, which has been the key to the financial health of the country for decades, is on the mend.

Japan has been hit harder by the recession than any other big economy in the world. Its consumer base is not nearly large enough to support its factories. That leaves it at the mercy of consumers in the large markets especially in the US and to a lesser extent the EU.

There has been a deep concern that Japan would fall into the kind of deflation cycle that plagued its economy through most of the 1990s and robbed the ability of many of the nation’s largest companies to effectively compete with an emerging China where government support for industry financed the growth of a manufacturing sector which is now unrivaled. The communist central government is continuing to make that investment, with the current $585 billion stimulus package being the latest sign of just how far the country will go to stimulate growth.

Japan finds itself desperately hoping that the economic recovery in the West can be sustained. Its stock markets are up sharply based on a belief that the value of the country’s companies will improve as exports do. That improving value of equities has been fueling consumer net worth and offering access to capital for public companies. Japan may still fall into a hole that will put it into another multi-year deflationary catastrophe. An improvement in the fragility of the American recovery is and will continue to be Japan’s only real hope.

Douglas A. McIntyre