The Bank of Japan commission’s four business surveys each year, known as Tankan surveys. The details of the latest Tankan survey show that business confidence is at its highest level in six years. The outcome is being seen as a vote of confidence in the economic policies of the government of Shinzo Abe which has just marked its first anniversary of coming to power.
The Tankan survey came in above the levels expected by analysts with the index for large manufacturers rising from 12 in the June survey, to stand at 16. The survey also indicated that larger businesses anticipated that they will increase capital spending in the New Year by 4.6%.
Shinzo Abe has made ending Japan’s price deflation a priority. Japan has been dogged by two decades of falling prices. Deflation is seen as a drag on the economy since consumers delay larger purchases for as long as possible so as to take advantage of prices which they know will be lower at a future date. This stifles domestic demand which is a key component in any economy. The Bank of Japan is targeting an inflation rate of 2%. Whilst there has been positive price inflation this year, much of that increase is due to the higher price that Japan has to pay for fossil fuel imports which are priced in Dollars. The Yen has declined by 24% against the Dollar since this time last year – meaning that Japan’s fuel bill has risen by a quarter. All of Japan’s nuclear power generating capacity is currently off-line for safety testing and owing to a loss of public confidence in the sector following the Fukushima accident.
The government is spending on infrastructure projects and has adopted an accommodative economic policy aimed to stimulate the Japanese economy. Ultimately, as with the American fiscal stimulation plan, the support must be withdrawn and the economy will have to have developed enough momentum to keep it growing. It is too early to make any meaningful evaluation of “Abenomics”, as Mr Abe’s policies are known, but they do at least seem to be producing a feel-good factor. The Nikkei index has risen by approximately 50% over the year since Abe came to power.