Business confidence on plus side for first time since 1991

Business confidence among principal manufacturing companies has taken a turn for the better for the first time in more than five years, according to the Bank of Japan’s quarterly “tankan” survey released Apr. 2.

The March survey reported a 5-point improvement in the diffusion index — calculated by subtracting the percentage of firms that view current business conditions as unfavorable from that for companies with a positive outlook — from negative 3 marked in the previous November survey. As a result, the March index registered a positive 2, the first positive figure recorded since November 1991, BOJ officials said.

The officials said the turnaround in business sentiment among manufacturers is due largely to strong recovery in such product sectors as automobiles, helped by the yen’s depreciation. “The tankan results support our view that the economy is continuing to recover at a moderate pace, and we see that the mechanism for self-sustaining recovery is strengthening,” said Masayuki Matsushima, the BOJ’s research and statistics director.

Although forecasts for the June business sentiment index are in negative figures for both manufacturers and nonmanufacturers, Matsushima said the slip-back predictions are still above November levels. One main reason behind the pessimism for the next three-month period is the 2 percentage point rise in the consumption tax.

Not all of the news was good. For major nonmanufacturers, the index for business conditions logged a negative 6, which Matsushima attributed to such factors as a reduction in public works and housing spending and lingering concerns over bad loans. The index remained in the negative range for smaller firms.