Business confidence in Japan increases

A key survey of Japanese business confidence provided fresh evidence yesterday that the world's No. 2 economy is slowly getting back on its feet, with manufacturers slightly more upbeat for a second consecutive quarter, analysts said yesterday.

At the same time, the Bank of Japan's Tankan survey, which showed executives remain cautious about the outlook -- given high oil prices and uncertainty over the global economy -- fell short of investor expectations.

Business at large Japanese manufacturers in the three months to last month rose to plus 19 from plus 18 in the June quarter report, compared with an average analyst forecast of plus 20.

A positive reading means that confident firms outnumber pessimistic ones.

The Tankan, which means short-term economic outlook, also showed that the index for large non-manufacturing companies remained unchanged from the June survey at plus 15, short of projections of a rise to plus 17.

The survey was "generally weaker than expected although still pretty good overall, showing essentially not much change in momentum but still consistent with reasonably strong growth," said HSBC Securities economist Peter Morgan.

"In particular the capital spending plans are still quite firm," he said, but added: "Firms are a bit concerned about things like oil prices and US growth."

Richard Jerram, an economist at Macquarie Securities, said the survey "shows an economy enjoying a moderately paced recovery, with firms continuing to be cautious about the outlook."

Japanese closed down 0.36 percent in the wake of the report, having risen by about 18 percent so far this year and nine percent last month alone.

The yen fell to below 114 to the US dollar for the first time since May last year.

"The Tankan headlines fell short of very bullish expectations," Jesper Koll, chief economist for Japan at Merrill Lynch, wrote in a research note.

But the details were more encouraging with domestic and overseas demand continuing to improve, he said.

"All said, the Tankan headlines reveal that Japanese business managers remain conservative and cautious in their outlook. However, the underlying cyclical indicators continue their gradual improvements," he said.

The survey provided support for the Japanese government's assessment last month that the economy has emerged from a lull.

"This is going to be a gradual, sustained recovery," Bank of Japan governor Toshihiko Fukui told a parliamentary committee in response to the report.

A pick-up in domestic demand and a weaker yen, which is good for exports, are boosting the fortunes of Japan's large manufacturers but at the same time high oil prices are driving up their costs and eating away at profits.

The survey polls more than 10,000 companies of all sizes across most industries and provides the most detailed picture of how Japanese industry sees business conditions over the next three to six months.

Companies asked about the outlook for sales, profits, capital spending, employment and other factors.

Looking large manu-facturers and small non-manufacturers foresee a slight deterioration in business conditions over the next three months while large non-manufacturers and small manufacturers forecast an improvement.

The survey also suggested that smaller businesses are benefiting from rising consumer spending.