The deterioration in corporate business confidence has been halted for the time being. To help the economy recover steadily, it is essential for the government to continue providing support.
The Tankan quarterly economic survey for September released by the Bank of Japan showed that the diffusion index, which indicates business confidence among companies, has improved. Among large companies, the index for manufacturers stood at minus 27, up 7 points from the previous survey. For nonmanufacturers, it rose 5 points to minus 12.
However, due to the spread of the novel coronavirus, the index in the previous survey had plunged to its lowest level since the collapse of U.S. investment bank Lehman Brothers, and its degree of improvement this time was small. It is far from a robust recovery.
By industry, the degree of improvement varies widely. In the manufacturing sector, the index for the automobile industry rose 11 points to minus 61, reflecting a recovery in exports and domestic sales. The index looking at future prospects three months ahead has returned to minus 28.
The recovery of the automobile industry, which has an impact on a wide range of other industries, is a positive factor. The index for electrical machinery manufacturers, which supply parts and materials, improved 13 points to minus 15 in September.
However, the infection continues to spread in Europe, emerging economies and elsewhere, which means that future exports remain unpredictable.
In the nonmanufacturing sector, which centers around domestic demand, the index for retail companies increased by 16 points to 18 because of an increase in "nesting consumption" demand for food and home appliances, among other items.
On the other hand, the indexes for accommodations, eating and drinking services, and services for individuals, which include amusement parks and theaters, remain at a low level and showed only a small degree of improvement. Their indexes languished at minus 87 and minus 65 respectively.
In these industries, the proportion of non-regular employment is high. It is feared that large numbers of workers could lose their jobs as employers terminate contracts due to companies' circumstances. This could accelerate the worrying deterioration of the employment situation.
It is important for the government and the Bank of Japan to carefully analyze developments in each industry and implement effective measures without interruption.
The government launched the Go To Travel tourism promotion campaign in July, and trips to and from Tokyo became eligible for the campaign in October. Later, a Go To Eat campaign to encourage people to use eating and drinking establishments was also added to the government's support measures. It is hoped that the public and private sectors will work together to stimulate consumption while taking thorough measures against the coronavirus.
It is necessary to help businesses procure funds in order to prevent an increase in bankruptcies. The government and the central bank should promote the smooth use of virtually interest-free and no-collateral loans.
It is worrisome that corporate capital investment, which is another pillar of domestic demand, began to decline. Total spending plans by companies of all sizes and industries for the current fiscal year fell 2.7% from a year earlier, the first decline in 10 years in any September survey, which has previously always shown a year-on-year increase. They probably are not confident of a full recovery of the economy.
The government should consider additional measures to encourage corporate investment, such as expanding tax breaks.
-- The original Japanese article appeared in The Yomiuri Shimbun on Oct. 7, 2020.
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