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Friday, December 15, 2006

December Tankan Index

Well the latest edition of the Bank of Japan’s Tankan survey is now public property, and it does register a marginal increase to 25 from 24 last time. Perhaps just as significantly though the companies surveyed expect the index to decline to 22 next time round, which means that the forward looking component is not overly strong.

Perhaps the most noteworthy point in the FT article was this one:

"One of the mysteries of the present recovery, now in its fifth year, is the slow pace at which record corporate profits and a tight labour market have transferred to wages and consumption. Mr Ogawa said companies would have to start increasing the share of profits given to labour over the next year or so, but he didn’t expect any dramatic rise in wages.

Well I hope that by now this feature of the Japanese situation should no longer be a mystery for regular readers of Bonobo Land or Demography Matters, or for that matter for readers of Claus Vistesen's blog. Basically a rising median age is affecting the savings component relative to consumption, while at the same time the tightening labour market is more a reflection of a reducing potential labour force than anything else. Thus:

The diffusion index for employment conditions at big companies in all industries registered minus 11, compared with minus 8 in September. A negative number reflects a labour shortage, a situation that is expected to deteriorate over the next three months when the index is projected to reach minus 13.

Given Japan's demographic not only should we expect this situation to deteriorate, it is hard to see how it can do other than deteriorate, and deteriorate.

Incidentally we have another version of the every cloud has a silver lining story running in Japan at the present time:

"Capital Economics, a London-based research company, said a rate rise next week would be “more Santa than Scrooge” since it could actually improve consumer sentiment by boosting the interest paid on savings. Economists regard domestic an improvement in consumption as vital to keep the recovery going and to consolidate the defeat of deflation."

Well the last time I thought about it, rising interest rates were thought to encourage saving, not discourage it. So although there may be some sort of wealth effect somewhere, the NET impact is sure to be negative for spending, not to mention what rising interest rates would do to the servicing problem for Japan's enormous mountain of public debt.

Incidentally, Claus and I are now both cross-posting on the Japan Economy Watch blog.

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