Business Uncertainty and Investment: Evidence from Japanese companies

This study, using data from a representative quarterly business survey in Japan, constructs measures of business uncertainty and presents empirical findings about the time-series properties of business uncertainty measures, and runs simple regressions to analyze the relationship between these measures and companies' investments. The analysis results show, first, that business uncertainty heightened at the time of the collapse of Lehman Brothers, but the effect of an increase in the consumption tax rate in 2014 on business uncertainty was small. Second, manufacturing and small companies tend to face higher business uncertainty than non-manufacturing and large companies. Third, we detect a negative association between business uncertainty and investments. Finally, the uncertainty measures constructed from micro data of the business survey have an advantage over the forecast errors calculated from the publicly available aggregated data. These results suggest the importance of maintaining a stable macroeconomic environment and of avoiding unpredictable conduct of economic policies.