tankan

The Bank of Japans closely-watched tankan survey of corporate sentiment showed that the mood among businesses improved sharply in the three months to June  after the central bank introduced an aggressive easing policy in April. Here are five initial takeaways from the poll.

The best reading in two years. The headline figure measuring sentiment among large manufacturers came to plus 4, up from minus 8 in the March survey. That’s the highest since plus 6 in the March 2011 poll, and the first positive reading following six straight quarters of minuses. The index of large non-manufacturers sentiment also improved to plus 12 in the latest tankan, up from plus 6 in the March survey, and the highest reading since March 2008. The index is calculated by subtracting the percentage of firms saying business conditions are bad from those saying they are good.

Stronger capex this fiscal year. The survey also showed that businesses were willing to spend on investment going forward. Big manufacturers and non-manufacturers revised higher their combined business investment plans for the current fiscal year started April to a 5.5% on-year rise from the 2.0% drop they had predicted in the March tankan.

First report card for Kuroda. BOJ Gov. Haruhiko Kuroda is likely to breathe a sigh of relief looking at the results of the survey, the first conducted after he led the central bank to introduce an easing policy on a “different dimension” in April, in a bid to beat deflation and generate 2% inflation in two years.

More good news for Abe. The tankan results are the latest in a series of indicators suggesting that Japans economy is continuing to pick up on recovering exports, despite the recent sharp pullback in Tokyo stock markets. That’s good news for Prime Minister Shinzo Abe, whose platform is based on putting the economy first with a policy mix of aggressive monetary easing, fiscal stimulus and pro-growth measures. He is enjoying strong support of around 60% ahead of an upper house election on July 21 .

No policy change seen. The BOJ’s policy board meets next week. The tankan results were in line with expectations economists polled by Dow Jones Newswires had expected a plus 4 reading for the main big manufacturers’ DI index—and reaffirms the majority view of the board that the economy is rebounding and that prices would start rising soon. As such, the BOJ is likely to stand pat on policy.

Follow George Nishiyama on Twitter @g_nishiyama

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