Japanese companies remained deeply pessimistic last month even as a central bank survey showed their confidence improving from record lows, suggesting the world’s second-largest economy is crawling rather than sprinting out of recession.
In the Bank of Japan’s quarterly tankan survey released yesterday, the closely watched sentiment index for large manufacturers stood at minus 48 last month. Three months ago it hit minus 58 in the sixth straight quarter of decline and the worst reading ever.
The figure represents the percentage of companies that believe business conditions are good minus those saying conditions are unfavorable.
The lower the number, the greater the pessimism.
The latest result marks the first uptick in two-and-a-half years but undershot an average forecast of minus 43 in a survey of 11 economists by The Associated Press. Other measures in the tankan revealed troubling weaknesses likely to hamper recovery in the world’s second-biggest economy.
The mood may have brightened slightly for big companies, but it wasn’t enough to convince them to spend more money. Major manufacturers and non-manufacturers sharply reduced their capital spending plans and now expect to cut expenditures by an average 9.4 percent this fiscal year through March 2010.
“Although the current economy is improving, companies cannot find confidence that this recovery will continue even if domestic and overseas economic stimulus packages run their course in the future,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo.
Based on the latest tankan, Japan’s nascent economic recovery is neither broad nor self-sustaining, he said.
The sentiment index for big non-manufacturers inched up to minus 29 from minus 31 in March.
However, confidence at other companies barely moved. Sentiment among medium-sized firms stood at minus 55 from minus 57, while that for small manufacturers stayed flat at minus 57.
For big manufacturers, the improvement in sentiment stemmed mainly from industries benefiting from global stimulus measures, analysts said.
Companies in the tankan say they still have too many workers and too much capacity.
Morita expects the jobless rate to at least hit a record high of 5.7 percent by the end of the year.
The Bank of Japan surveyed a total of 10,319 companies between May 26 and June 30, of which 99 percent responded.
The tankan helps the central bank guide monetary policy, but board members are not expected to change interest rates when they meet.