Slowly but surely Japan’s recovery from the terrible impact of the March 11 quake, tsunami and the Fukushima nuclear crisis is growing stronger.
But that can’t be said for the country’s squabbling politicians, both in the government and in the opposition as various factions combine to force Naota Kan’s resignation as Prime Minister after only a year on the job and with much of the framework for the restriction and the probing of the Fukushima crisis left unresolved.
And despite the weakness in the sharemarket, driven by worries about Greece and the health of the US economy, the underlining Japanese economy is looking better by the week.
In fact its outlook would have to be stronger than for any major economy in Europe and the US, despite the pressing debt and political problems.
The Bank of Japan upgraded Wednesday its assessment of the economy for the first time since March, as the restoration of the breaks in the various supply chains are repaired and production bounces back.
At the same time there’s been a small improvement in consumer sentiment and the central bank’s quarterly Tankan survey, to be released at the end of this month, will be better than seemed possible a month ago.
"Japan’s economy continues to face downward pressure, mainly on the production side, due to the effects of the earthquake disaster, but is showing some signs of picking up," the BOJ said in its monthly report.
Supply-side constraints are starting to ease and household and business sentiment is improving and an increase in production is likely to become more noticeable as supply-side constraints ease further, the BOJ said.
The BOJ expects the economy to return to a moderate recovery path with capital spending, housing starts and public-works spending to increase gradually in line with the restoration of capital stock.
The bank said "private consumption is expected to pick up partly due to the improvement in household sentiment as production recovers".
"Financial conditions have generally continued to ease, although weakness has been observed in the financial positions of some firms, mainly small ones, since the earthquake," the BOJ said.
Meanwhile, conditions in the corporate bond market as a whole have turned favorable, the BOJ said.
And the Nikkei newspaper reported yesterday that sentiment among manufacturers, which worsened considerably after the March earthquake and nuclear accident, continues to improve as output recovers.
According to a QUICK Corp. survey for June, the diffusion index for business conditions among manufacturers improved 7 points from May to minus 3. The index is calculated by subtracting the percentage of firms expressing negative views from those voicing positive sentiment.
At the same time, the diffusion index for how manufacturers view business conditions over the next three months improved 8 points to 7, marking a return to positive territory.
Companies appear to be less wary about the outlook as production disruptions caused by the March 11 disaster subside and private-sector demand picks up.
The only negative seems to be fears about the possible power shortages in the Kanto area around Tokyo and in the Kansai area to the south.
These are expected to occur from late this month onwards, but as the government and many companies have been altering production schedules, staffing rosters and working hours and days it is possible there will be less disruption than feared.
The survey was conducted between May 30 and last Sunday, according to the paper.
And figures out this week confirm just how solid the economy was going before the March 11 disasters struck.
While the disasters slashed growth, investment and spending and will force the government to spend over $300 billion or more than 25 trillion yen (as a minimum, plus the spending on keeping Tokyo Electric alive), the financial position of the government was improving ahead of March.
The Japanese government’s new bond issuance totalled Y42.3 trillion during last fiscal year a government official said, Y2 trillion (or around $24 billion) less than initially planned because of a better than expected rise in tax revenues ahead of the March 11 disasters.
The government has said it would borrow around 44 trillion yen in the year to March 31, 2011.
Of all the major industry groups, power and cars appear to be the ones most affected by the disasters.
We already know that Tokyo Electric (owner of Fukushima) is a basket case and being supported by its banks and now the government.
Other power companies, such as Tohoku, Kansai and Chubu, are also under growing financial strains.
Car companies like Toyota are recovering as production levels at home and offshore rise.
But Toyota is forecasting a 31% drop in profits for the year to next March.
This week the industry Number 3 Honda Motor said a combination of the impact of the disasters on production at home and abroad, plus the high yen, would slash the 2012 profit by more than half.
The company forecast a net profit of Y195 billion in the current fiscal year to next March, down from Y534.09 billion in the March 2011 year.
It would be the first drop in three years.
But not all Japanese auto makers will suffer from the strong local currency and the earthquake impact. Mitsubishi Motors, Japan’s sixth-biggest car maker, says it expects a 28% r
