We have developed an index for the business cycle that statistically extracts the actual state of the economy from the opinions of businessmen about their own business conditions. It is free from the common problem of conventional indexes that their values depend on the macroeconomic variables selected, which tends to be arbitrary. Our index is calculated using Bank of Japan TANKAN data. Empirical results show that the troughs and peaks projected by our index seem to have systematic relationships with business cycles that have been identified ex post by Japan's Economic Planning Agency.
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.