Although business conditions in Japan have improved markedly, a greater reluctance by Japanese firms to invest and a bleak assessment of employment conditions means that the economic situation remains dreary, a report released by BNP Paribas said Thursday.
The Bank of Japan recently released the results of its quarterly Tankan survey, with the diffusion index for business conditions improving to -38 in the third quarter compared to -45 in the previous quarter. Sentiment showed significant improvement especially among large and medium-sized enterprises on the back of fiscal stimulus measures and the completion of inventory liquidation.
Financial conditions improved among all industries with financial institutions increasingly willing to lend, although they remained tight for medium-sized and small enterprises. The firm said that the Bank of Japan might seriously consider withdrawing some of its temporary relief measures such as the buying of commercial paper or corporate debt, now that financial conditions have improved.
Despite better financial conditions, investment plans were further scaled back by Japanese enterprises. The report noted that although production and demand have picked up, firms still suffer from a substantial capacity overhang and are expected to shrink capital spending by 17.3% in 2009. Another worrisome aspect is industries' assessment of employment conditions, with a majority of enterprises deeming employment to be excessive. This was particularly the case in the manufacturing sector, with manufacturers expected to continue shedding jobs to compensate for reduced output levels.
The firm said that although conditions were more favorable for businesses at present, the economic situation in Japan remains worrisome despite the accommodative stance adopted by the central bank.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.