Sentiment among the country’s largest manufacturers rose to a two-year high, an advance that may be hampered by evidence the global economy is slowing.
The gain in the Bank of Japan’s quarterly “tankan” index, which exceeded all 22 forecasts in a Bloomberg survey of economists, proved insufficient to stem a five-day losing streak in the Nikkei 225 stock average. Equities have slid worldwide this week amid reports showing slower Chinese growth and a drop in U.S. consumer confidence, along with concern that European policymakers are withdrawing stimulus steps.
The tankan index of sentiment climbed to plus 1 in June from minus 14 in March, the BOJ said Thursday, meaning optimists outnumber pessimists. The report was a contrast with data this week showing higher unemployment, falling household spending and a drop in paychecks.
“We can’t call this a self-sustaining recovery until wages steadily recover,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “Until we beat deflation, we’re unlikely to see sustainable gains in wages.”
Thursday’s report also showed that large companies plan to increase capital spending 4.4 percent in the year ending March 31, the first gain in three years. That echoes evidence across Asia that the region is so far proving resilient to the European crisis.
Confidence among large manufacturers was forecast to climb to minus 4, according to the median estimate of economists surveyed. The May 26-June 30 tankan polled 11,411 businesses.
Should firms follow through on the forecasts in the tankan, increased investment may help halt a weakening job market. The tankan’s labor index for big manufacturers showed the highest demand for employees since December 2008.
The unemployment rate rose for a third straight month in May, to 5.2 percent, a government report showed this week.
The improvement in sentiment in the past quarter reflects an earnings rebound as global trade recovered from its deepest postwar contraction. Large firms see profit rising 21.6 percent this fiscal year, the tankan showed.
Analysts estimate that companies in the Nikkei 225, excluding those projected to post net losses, will report a 48 percent gain in earnings per share in the next 12 months on average, according to data compiled by Bloomberg.
“Companies are expecting profits to rise with sales,” said Matsuoka at Daiwa Asset. “So it’s a little different from before, when the profit gains were coming from firings.”
While BOJ Gov. Masaaki Shirakawa sees signs the rebound is starting to spur demand at home, the tankan improvements are unlikely to signal an end to his policy of keeping interest rates at 0.1 percent, as deflation lingers.
“It will be difficult for the central bank to justify ending the easy monetary policy,” said Soichi Okuda, chief economist at Sumitomo Research Institute in Tokyo.
“The government will continue to press the central bank” to spur prices.
Prime Minister Naoto Kan last month released plans for boosting economic growth as well as shrinking the budget deficit to contain the developed world’s biggest public debt. The growth strategy aims to halt the slide in consumer prices next fiscal year and urges the BOJ to “make utmost efforts” to end deflation.
“We can’t expect a V-shaped rebound to continue,” said Hiroshi Watanabe, a senior economist at Daiwa Institute of Research. “The positive mechanism for the economy, in which an increase in overseas demand penetrates domestic demand and sustains the expansion, is getting weaker.”