Japan's Merchant Sentiment Rises But Outlook Remains Dour

Japan’s [B]Tertiary Index[/B] rose 2.2% in April following a -2.8% decline in the previous month. Although an improvement in percentage terms, the result would still puts merchant sentiment at the lowest level in 5 years and firmly within the downward trajectory that has held since the index topped out in August 2007. Current signs of stabilization in merchant and consumer confidence likely owe to the government’s record-setting $25 trillion yen stimulus package as well as the rebound in share prices (the Nikkei benchmark index has surged 39.4% to date since early March). Looking ahead however, the outlook seems shaky at best: the dismal outlook for global trade volumes in 2009 and 2010 will mean that a robust recovery for the export-dependent Japan will remain elusive for the time being, leaving output and employment levels at the lower end of the spectrum. Minutes from the last Bank of Japan policy meeting saw policymakers note that exports will “level out” due to inventory adjustments, meaning little chance of a meaningful rebound in global demand, while private consumption will “remain relatively weak…as the employment and income situation [becomes] increasingly severe.”