The Bank of Japan's (BOJ) December tankan survey showed Monday that sentiment among big manufacturers in Japan has improved as the world economy shows signs of recovery, however a
less-than-positive outlook for capital expenditure indicates Japanese firms are remaining circumspect for the remainder of this fiscal year.
The headline diffusion index in the central bank's quarterly survey of corporate sentiment showed that conditions among large manufacturers rose 9 points to minus 24 in December from minus 33 in the September survey, the BOJ said on Monday, however the index remains negative for the sixth quarter in a row and the pace of the improvement was slower than a 15-point rise
logged three months earlier.
The median estimate for December was minus 27 and the report also showed that the index for March 2010 was seen at minus 18, showing Japanese
companies expect conditions to improve over the next three months.
Sentiment among large non-manufacturers also improved by 2 points to minus 22 in December from a reading of minus 24 three months prior, this was in line with market expectations.
The figures represent the percentage of companies reporting that business conditions are good, minus those that report their situations are negative. The negative numbers point towards companies that are still suffering under the recession.
The results released on Monday indicate that some parts of the economy are recovering in part because the BOJ introduced a new stimulus package
amounting to as much as 10 trillion yen to help out small and mid-sized companies, as well as address issues of unemployment.
Japanese companies, facing a resurgent yen, plan to cut capital spending by more than expected in the year to March 2010, the BOJ's
quarterly tankan survey showed. Additionally bank lending to both big and small companies has barely improved.
The BOJ tankan reinforces the Japanese government's fears that a strong yen and deflation may push the economy back into recession
Large companies in both manufacturing and nonmanufacturing sectors plan to cut their business investment by an average 13.8 percent in fiscal 2009 ending in March from the previous year, marking the largest reduction in capital investment plans for an October-December quarter and above the median forecast for a 11.3 percent fall. Capital spending by large companies
is a key driving force behind the economy and accounts for 15 percent of Japan's GDP. "The dollar/yen rate is moving lower than expected and small and mid-sized firms forecast their conditions will worsen over the next three months," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.
"The BOJ is unlikely to take further steps at its policy meeting this week. But it is expected to continue to seek effective ways to combat deflation as excess production capacity and employees at Japanese firms will add further downward pressure to prices."
The report, the results of which are thought to have a considerable bearing on BOJ policy also showed that large firms, including manufacturers
and non-manufacturers, expect their recurring profits this fiscal year to fall 19.3 percent, better than the fall of 22 percent forecast in the previous survey.
Big manufacturers' production capacity index fell to plus 30 from plus 34 in the previous survey, showing that companies feel less burdened with excess capacity than three months ago and the employment indexes for both big and small firms showed modest improvements in views on excess labor.
The survey covers thousands of Japanese companies with a specified minimum amount of capital, although firms deemed sufficiently influential may also be included.