The Bank of Japan’s TANKAN Survey of the nation’s large businesses for the month of September showed that the management at the companies polled like things as they are now, but dislike what they see in the future. The biggest manufacturers raised their “favorable” impressions of the current state of affairs from “1” to “8” since the June survey. But, their outlook for the December period fell from the current “8” to “-1”. That is a substantial transformation from optimism to despair in an extremely short period.
There are several reasons for the rapid change. First among these may be that Japan’s multinationals do not believe that the government’s intervention to control the price of the yen will work. It had some initial success which was stifled by global currency traders. The Japan premier and Bank of Japan may intervene again, but Japan’s large companies clearly think these plans will not help the yen any more than the actions of the past.
Japan’s exporters will take large losses if the value of the yen remains where it is. That means their fourth quarter earnings will be dismal, even if the demand for products and services rises.
But, demand may not rise and that is the real underlying concern of most exporters in Japan, the US, and most other developed nations. The global economy shows signs of a slowdown with the exceptions of China and India. The current value of the yuan means that Japan’s exports to China will be more difficult to sell.
Japan is in worse shape than the US if its currency remains in trouble and the economy does slow. It still relies on exports for an unusually large amount of its GDP and imports for an unusually large part of its commodity supplies.
The people who run Japan’s largest companies understand that the current dynamics of the global economy and currency imbalances may go on for several more quarters, which means the TANKAN results are likely to get worse.
Douglas A. McIntyre
Top Gaining Stocks
Top Losing Stocks