The Bank of Japan just released the quarterly Tankan survey of business sentiment; revealing the all companies index had fallen to -11 from -10. Large manufacturers declined to 5 from 8, and large non-manufacturers fell to 1 from 2. Small manufacturers improved to -12 from -14 and small non-manufacturers fell to -22 from -21. Thus overall the results were relatively negative, reflecting the challenging economic conditions in Japan. Companies are finding the dual effects of fading stimulus and a stronger Yen to be having a negative impact.
So the question is, what does this mean? Does this herald a double dip for the Japanese economy? Well growth could well be negative in Q4, but in terms of a second recession, there is the possibility. But the Bank of Japan and the government may well react to worsening data like this by pumping in more money, or undertaking other stimulatory moves such as reducing the corporate tax rate. But with the worsening data it's little wonder that Japanese stock market valuations are below historical averages. For those that are fans of mean reversion, there is the caution that these are not normal times. But if the government and bank of Japan can get it right, and the tides go in favor of Japan, then Japanese equities could be worth considering.
Econ Grapher Analytics www.econgrapher.com
Bank of Japan www.boj.or.jp
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