Wednesday July 1, 08:58 AM
Japan Inc. more upbeat for first time since 2006
By Daniel Rook
TOKYO (AFP) - Japan's business executives have become more confident for the first time since 2006, according to the central bank, supporting hopes the worst recession since World War II is easing.
But the rebound was smaller than expected, suggesting that the world's second largest economy faces a rocky road to recovery, analysts said.
The sentiment index for large manufacturers rose to minus 48 in June from a record low of minus 58 in March, the Bank of Japan's quarterly Tankan survey showed.
The rise "confirms the Japanese economy ended its freefall in the first quarter," said Societe Generale (Paris: FR0000130809 - news) 's chief Asia economist, Glenn Maguire.
But the fallout from the slump lingers and companies' capital expenditure plans appear "dreadfully weak," he noted.
Large firms across all sectors plan to trim their investment in factories and equipment by 9.4 percent on average for the current fiscal year to March, the survey results showed.
It was the first improvement in the Tankan confidence index since December 2006 and the sharpest increase since June 2002, when it had jumped 20 points.
The results, however, fell short of market forecasts for a figure of about minus 43.
Macquarie Securities economist Richard Jerram said the survey was "a bit on the disappointing side."
Compared with other confidence surveys in Japan, the main Tankan indices have been slow to recover, he noted.
The confidence index for major non-manufacturers improved only slightly, to minus 29, from minus 31 three months earlier.
"There are some bright signs of recovery among big companies," said Chief Cabinet Secretary Takeo Kawamura, the top government spokesman.
But the mood had not improved much among non-manufacturers and unemployment continued to rise, he noted.
"We have to pay full attention to concerns that such factors may lead to a risk of the economy deteriorating," Kawamura told reporters.
A negative figure suggests the mood remains gloomy overall. The index measures the percentage of firms that think business conditions are good minus those that believe they are bad.
There are worries that even if the current recession ends, the economy could start contracting again once the effects of economic stimulus measures fade, entering a so-called "double-dip" recession.
"We cannot help being concerned about the risks of a double-dip in the Japanese economy," said Naoki Murakami, chief economist at Monex Securities.
The Tankan found that big manufacturers expect sentiment to continue to improve, forecasting a confidence rating of minus 30 for September.
But they have downgraded their profit outlook, forecasting a 39.5 percent drop in pre-tax earnings for the current financial year to March. Three months earlier they had expected a 19.7 percent decline.
Before the current economic downturn began, Japan's corporate sector had been a key driver of a recovery in Asia's largest economy following the recessions of the 1990s.
Now major exporters, many of which are deep in the red, are cutting back their investment in an effort to ride out the recession.
Asia's biggest economy shrank at an annualised pace of 14.2 percent in the first quarter of 2009, the worst performance on record.
Another survey released by the government Wednesday showed that Japanese land prices fell 5.5 percent in 2008, the first decline in four years, fanning concerns that the economy is set for another bout of deflation.
Figures released Tuesday showed the unemployment rate rose to a more than five-year high of 5.2 percent in May.
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