Japan's tankan posts historic leap


Japanese business showed improved confidence almost across the board, but spending hasn't picked up

TOKYO, Japan (CNN) -- The Bank of Japan's tankan survey showed its strongest one-time jump yet for the June quarter, surprising observers.

The tankan takes a look at the number of companies that believe the economy is improving against those who believe it is not.

"The BoJ Tankan survey for June showed a broad improvement in business conditions," Ryo Hino, an economist with J.P. Morgan, told CNN in an e-mail report.

Stronger corporate confidence could have far-reaching effects. Japan's recession has eaten into the popularity of Prime Minister Junichiro Koizumi.

The jobless rate is back up to 5.4 percent, near its record high (full story).

The tankan figures suggested Japanese business sees better things ahead, almost across the board.

"It's a pretty spectacular improvement," Richard Jerram, ING Barings chief economist, told Reuters news agency.

Highlighting small company performance

The central BOJ surveyed 8,550 companies. For large manufacturers, the index gave a reading of minus 18 for the June quarter.


The jobless rate rose to 5.4 percent with the latest release and the bad economy is weighing on Japan's political scene

That was up from minus 38 for the previous three months. It was also the best reading since June 2001.

Hino noted that the figures for small companies showed marked improvement as well. The small manufacturers index rose to minus 41, up from minus 51.

That was the first time that measure had improved since December 2000.

The one area of weakness in the tankan remains capital spending. Companies are still proving unwilling to invest on expansion or equipment upgrades. For large companies, capital spending plans dropped 8.9 percent over the prior year.

Economists had been expecting a drop of just 6.9 percent.

Japan's currency markets did not respond to the optimistic data. A strong economy suggests the currency will get stronger as well.

Yen not yet a threat for recovery

But the yen stands at 119.60 to the U.S. dollar at mid-morning on Monday, little changed from its range on Friday.

Big manufacturers are basing their forecasts on the yen trading around 125 to the dollar, the tankan showed.

The yen's rip of strength against the dollar since February has jeopardized Japan's export-driven recovery. A stronger yen has been making Japanese goods more expensive overseas.

Jerram pointed out that Japan's recovery was predominantly export driven. "Nothing much is happening to domestic demand at the moment," he told CNN.

Currency traders will be watching for official comment and signs of intervention. A senior finance minister official said Japan is always in contact with overseas monetary authorities over foreign exchange.

Jerram told CNN Monday there was "no magic level" at which the yen's strength becomes a problem for Japan's recovery. But he said if the U.S. dollar weakened to 110 or even 100 yen, it would be a "pretty serious problem."

Most currency trackers say the yen's level has little to do with Japan and more to do with the problems facing the U.S. economy.

Serious questions at 110

If the yen hit 110, there will be questions about why the United States economy -- and by reflection its currency -- has sunk that low, Jerram said.

Japan's stock market is moderately higher at mid-morning,with the Topix index of all Section 1 stocks up 0.59 percent at 1,030.98 (full market roundup).

The Topix reflects a run in bank stocks, which have faced heavy pressure during Japan's economic downturn. The Nikkei is up just 0.14 percent at 10,636.43 at the same time.

The tankan survey is well watched because Japan's gross domestic product figures are erratic and somewhat dated by the time they are released.