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News Release

A Forecast of the Bank of Japan's
Short-Term Economic Survey ("Tankan")
(March Survey)

March 18, 2005

The latest edition of the Bank of Japan's Short-Term Economic Survey ("Tankan"), based on the March 2005 survey, which is due to be published on April 1, is likely to show that the Japanese economy is still in a plateau phase. However, with business confidence is to improve and capital investment plans holding firm, among other factors, it is likely that the signs of incipient economic recovery will gradually become stronger.

The business sentiment diffusion index for March is likely to show no change on the level recorded at the end of December, on an all industries/ all sizes of company basis. Among large companies in the manufacturing sector, against the backdrop of a slow recovery in production and exports and a fall in profitability due to the rising prices of raw materials, confidence is likely to register a fall for a second quarter. In the non-manufacturing sector, on the other hand, the steady trend of domestic capital investment and consumer spending suggest that confidence is likely to show a slight improvement. By the time of the June forecast, expectations of a recovery in production following the completion of inventory adjustments and a rise in consumer spending stimulated by Expo 2005 Aichi, Japan mean that the diffusion index is likely to show an improvement in both the manufacturing and the non-manufacturing sector.

The Tankan's forecast of the amount of capital investment in fiscal 2004 is likely to show that, especially in the manufacturing sector, companies are maintaining a positive outlook. Among large companies in the manufacturing sector, an improvement is expected for a third year in succession, against the backdrop of a recovery in investment in increasing capacity and semiconductor-related investment among the materials industries, and in the non-manufacturing sector, too, capital investment plans are relatively high for the initial stage.

For more information on the content of this report, please contact: Hideki Matsumura,Yoshihito Sato the Japan Research Institute, Limited.

Tel: 03-3288-5360

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