Print

Mail

wiki links

Japanese business confidence rising

Major Japanese companies have grown more confident and plan to boost spending on new plants and equipment, a survey showed yesterday, raising expectations of an end to zero interest rates next week.

The sentiment among large manufacturers rose to 21 last month from 20 in March despite recent falls on global stock markets, the Bank of Japan's (BoJ) quarterly Tankan survey showed.

The figure matched market predictions but was slightly below the 22 forecast for large manufacturers last month. A positive reading means that confident firms outweigh pessimistic ones.

"There's nothing in here to persuade the BoJ to hold off on interest rate increases," said Richard Jerram, economist at Macquarie Securities, adding the central bank seemed likely to make a move on Friday of next week.

"The overall numbers show a very solid economy with no great feeling of excess labor or capacity," he added.

The survey of almost 10,000 companies also showed the index for major non-manufacturers improving to 20 last month from 18 in March.

"We see the `feel good' factor of the recovery as broadening out from manufacturers into non-manufacturers," said Jesper Koll, chief economist for Japan at Merrill Lynch.

"We think the Tankan is strong enough to give a green light for a BoJ move on July 14," he said.

Analysts were particularly encouraged by news large companies in all industries plan to raise capital spending by 11.6 percent on average in the fiscal year to next March from the previous year.

"Companies remain fairly aggressive on their capital expenditure plans in particular for the first half of the fiscal year," noted Hiromichi Shirakawa, chief economist for Japan at Credit Suisse First Boston.

"I think for the Bank of Japan, sustained business sentiment and the upgrading of capital expenditure plans should support the idea of ending zero interest rates at the next meeting [on July 14]," he said.

The Tankan has picked up from a low of minus 38 four years ago, even if is below a 13-year high of 26 reached in September 2004.

Looking ahead, the index is seen rising one point to 22 in September, with large non-manufacturers also up one point to 21.

The report showed mid-sized firms grew slightly more upbeat while small companies remained cautious.

The employment conditions index at large firms, which measures the number of companies that believe they have excess workers minus those that believe they have too few, stood at minus 7, the lowest level since the May 1992.

"Going forward, personal consumption and capital expenditure are likely to remain solid due to tighter labor market conditions and [the] Tankan is quite supportive of the BoJ's lifting of the zero interest rate policy at the July 14 policy board meeting," Morgan Stanley economist Takehiro Sato said.

On a less upbeat note, companies of all sizes see their combined current profit rising just 1.5 percent in the financial year to March, although analysts said this figure was likely to prove excessively cautious.
This story has been viewed 938 times.