Japan’s business confidence highest in two years
Japanese business confidence has reached its highest level in two years, as the world’s number two economy continues to recover from its worst slump in decades, the Bank of Japan said Thursday.
The index of sentiment among major manufacturers rose for a fifth straight quarter to one point in June from minus 14 in March, according to the central bank’s closely watched Tankan survey of more than 11,000 firms.
The reading means that optimists outweigh pessimists among major manufacturers in terms of their view of Japan’s economic climate for the first time since June 2008, beating analyst forecasts of a reading of minus 4.
The June survey signals an increasingly upbeat mood, with companies predicting surging profits while planning to raise spending on plants and equipment, likely boosting an economy struggling for sustainable growth.
The data will be welcomed by Prime Minister Naoto Kan’s government ahead of elections this month as it puts fiscal discipline at the core of its agenda to repair Japan’s tattered finances and slash the world’s biggest public debt.
Exports have driven the country’s recovery from recession but recent data showed the domestic picture remains weak, with unemployment surprising economists by edging higher in May to 5.2 percent, missing expectations.
Crippling deflation and weak domestic demand continue to weigh on growth as consumers defer purchases in the hope of further price falls. The government has said it aims to end deflation by fiscal 2011.
However, the latest data will boost hopes that Japan can cultivate a self-sustaining recovery, analysts say.
“Japan’s economic recovery, which has been led by exports, is steadily spreading to the non-manufacturing industry,” said Naoki Murakami, chief economist at Monex Securities.
“Business is recovering, including companies that are not direct beneficiaries of exports.”
Major manufacturers meanwhile forecast a 161 percent surge in net profit for the current financial year, after a revised 16.6 percent rise last year.
Together, Japan’s large manufacturers and non-manufacturers are eyeing a 68.1 percent rise in profits in the current year.
Large manufacturers and non-manufacturers plan to boost capital spending by 4.4 percent in the fiscal year that began in April, better than the 0.4 percent decline forecast in March and a revised 17 percent cut in the previous year.
Such plans illustrate that an export-led recovery in exports is “spreading to capital spending”, said Takeshi Minami, economist at Norinchukin Research.
But “we should keep in mind that there are concerns over the global economy and Japanese exports could slow down”, said Minami.
The risk of Japan’s export dependency has been underlined by concerns that the withdrawal of global stimulus, emphasis on austerity and European debt could hit overseas shipments.
Exporters have eyed Europe cautiously, with the safe-haven yen soaring in recent months on European debt worries, which if sustained will dent exporters’ repatriated profits and make their goods more expensive overseas.
The index, which measures the percentage of firms that think business conditions are good minus those that believe they are bad, hit a record low of minus 58 in March 2009.
Source: AFP