Tankan survey shows improvement but not yet strong economic recovery

The Yomiuri Shimbun

16:00 JST, July 4, 2021

Companies’ business sentiment has improved, but the economy is still far from a full-fledged recovery. There are noticeable differences in strength and weakness, depending on the industry and the size of the company. Efforts should be made to curb the spread of novel coronavirus infections and support businesses operators.

The Bank of Japan has released its Tankan quarterly economic survey for June. The business sentiment index of large manufacturing companies stood at plus 14, up nine points from the previous survey. This is the fourth consecutive quarter of improvement and the highest level since December 2018.

The reason for the improvement is that exports are growing as the economy picks up in the United States and other countries where vaccinations against COVID-19 are underway. By industry, a wide range of sectors saw higher numbers, including production machinery, electrical machinery, and nonferrous metals.

On the other hand, the motor vehicles sector deteriorated by seven points due to the global shortage of semiconductors. The automobile industry is one of Japan’s core industries and has a broad base, so if production were to stagnate, the impact would be significant. It is important for the public and private sectors to put efforts into the stable procurement of semiconductors.

An index for the three-month outlook for large manufacturing companies showed a slight decline. There are concerns about cost increases due to rising prices of raw materials such as crude oil and iron ore around the world. The overheated economy and rising prices in the United States are also a cause for anxiety.

In order for Japan’s economy to gain strong momentum, it is desirable to break away from relying on exports and shift to a self-sustaining recovery driven by domestic demand.

In the Tankan survey, the index for large nonmanufacturing companies, which are mostly linked to domestic demand, rose by two points to plus one, turning to the positive side for the first time in five quarters. However, the gap with the manufacturing sectors is large. The accommodations, eating and drinking services sector, which is suffering amid the COVID-19 pandemic, improved slightly, but remains at a low level of minus 74.

To boost consumption, which is the main pillar of domestic demand, it is necessary to create an environment in which people can enjoy shopping and leisure activities with peace of mind. In Tokyo, the number of infected people is increasing again. The first priority is to contain the spread of infections.

Household savings are increasing, as consumption has been suppressed by the pandemic. Some believe that consumption will recover quickly if COVID-19 vaccinations progress and infections abate.

However, some confusion has been observed, such as the sudden halt in accepting applications for workplace vaccinations. The government must clearly indicate the supply outlook for vaccines and make efforts to ensure smooth delivery to municipalities and companies so that inoculations will be provided to a wide range of people quickly.

Another problem is the delay in the provision of cooperation money to businesses that have agreed to halt or shorten their operating hours.

Raising funds for businesses in need is often a race against time. Party to protect employment, the central and prefectural governments need to realize swift distribution of the cooperation money through simplified procedures and other measures.

— The original Japanese article appeared in The Yomiuri Shimbun on July 4, 2021.