On March 3rd, the Teikoku Databank (TDB) announced the results of its February 2022 TDB Business Trend Survey. 

The number of valid responses was 11,562 companies making it a significant source of data that can be a bellwether for employment and wage data moving forward.

The key headline from the report is that the business sentiment diffusion index for the month of February stood at 39.9, down 1.3 point from the previous month and worsening for the second straight month. 

A diffusion index is an index that indicates how pervasive a particular sentiment is on economic conditions or a forecast of price levels.

According to the TDB, “An economic DI of 50 is the point separating good and bad, so a DI over 50 means good, and below 50 means bad.”  No weight was given on the size of the participating companies ergo one company equals one vote.  

Further methodology is explained in the TBD February and January reports linked at the bottom of this article.

According to the report, the Japanese domestic economy continued to decline due to factors such as the spread of omicron, soaring fuel prices, and heavy snowfall. 

Nine out of ten industries and 41 out of 51 lines of business within the measured industries deteriorated in their sentiment.. 

Personal consumption in retail and services declined due to the extension of measures to prevent the spread of disease, while purchase prices in transportation and warehousing continued to rise due to soaring crude oil prices caused by increased geopolitical risks such as the situation in the Ukraine.

Real estate industry sentiment overall deteriorated for the second consecutive month to 42.6, down 0.3 points.  

While there were comments such as "Sales of houses and condominiums are strong", other segments of Japan’s real estate sector saw more negative sentiments such as "Inbound demand is decreasing" (from property managers), and "Tourists and business travelers are decreasing due to restraint on travel following the issuance of measures to prevent the spread of disease.” 

Retail as well as food and beverage companies also saw very negative sentiment due to the pandemic. 

Data like this is important to watch as it can affect residential rents and prices as it speaks directly to buyer or renter demand.  

If companies believe the economic outlook is bleak, there will be little chance for wage increases for their workers.  

In the worst case scenario, companies might lay off workers eliminating their ability to obtain loans and pass rental inspections.  

Those workers that remain will not feel secure enough with their employment status to take on new debt, no matter how cheap the borrowing is.  They will save more of their disposable income thus lowering household spending which can then kick off a vicious cycle of low consumer demand across the board and lowered corporate revenues.

Indeed, a look at the TBD’s January report hardly mentioned anything about the situation in the Ukraine, a topic that became dominant in February’s report. 

In the best case scenario, these two months of decreased DI could play out as a blip on the radar as the sentiment generally is expected to increase to 44.8 points within a year however this is only a prediction and evolving global situations can have a strong impact on forecasts.

Further Reading

February 2022 TDB Business Trend Survey (March, 2022)

January 2022 TDB Business Trend Survey (February, 2022)