Analysts: ‘Tankan’ rebound to cap stimulus

Large manufacturers to show less pessimism in coming report

Bloomberg

The Bank of Japan’s “tankan” survey is likely to show large manufacturers have become less pessimistic, adding to signs of an economic revival that will bolster the case for capping stimulus measures this year.

The quarterly index of business sentiment will rise to minus 1, the best reading since September, according to the median forecast in a survey of 20 economists. The gauge was at minus 4 in December, with the negative number meaning pessimists still outnumber optimists. The tankan is due April 2.

Improving sentiment in Japan, signs the European debt crisis is easing and better economic data from the U.S. may signal that the world is nearer to returning to sustainable growth. At the same time, any limiting of bond purchases by the BOJ will fuel criticism from lawmakers who want Gov. Masaaki Shirakawa’s Policy Board to do more to end a decade-plus of deflation.

“Legislators are likely to keep pushing for more easing because deflation won’t go away even if the BOJ eases further in April,” said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo and a former BOJ official.

The yen’s 9 percent slide from a postwar high against the dollar in October is helping automakers sell more of their vehicles overseas, while gains in capital spending are also aiding the recovery from last year’s earthquake and tsunami.

The tankan will show that confidence among large service providers rose to 5, the highest since June 2008, from 4 the previous quarter, according to the analysts’ median estimate.

A gain in German business confidence reported Monday underscored optimism that Europe’s crisis is easing. In Hong Kong last week, James Bullard, president of the Federal Reserve Bank of St. Louis, said the Fed’s first interest rate increase since the global financial crisis may come as soon as late 2013 after improvements in the U.S. economy.

In Japan, analysts are split on whether more easing will come next month, with policy meetings due April 9 to 10 and April 27. RBS Securities Japan Ltd. said the prospect is “receding,” while Adachi said the BOJ may expand asset purchases and raise the inflation goal to a range of from 1 percent to 2 percent to affirm a commitment to fighting deflation. Consumer prices excluding fresh food fell 0.1 percent in January.

The BOJ’s ¥10 trillion expansion of bond purchases Feb. 14 helped to weaken the yen, which has been trading around 83 per dollar lately, compared with a postwar high of 75.35 in October.

A Bloomberg News survey indicates the economy will expand an annualized 1.7 percent this quarter after a 0.7 percent contraction in the fourth quarter. Bank of America Merrill Lynch has forecast that stock gains will continue, saying in a report that the tankan “will show how far the yen’s recent softening has fed into improved economic sentiment.”

“The economy will be on a firm footing this quarter and next, so there isn’t really much need for more stimulus,” said Takahide Kiuchi, chief economist at Nomura Securities Co. “I don’t think there will be any formal government calls for more stimulus unless the yen appreciates.”

Toyota Motor Corp. last month raised its profit forecast 11 percent as sales rebounded in the U.S. Still, President Akio Toyoda said last week the yen remains too strong and needs to weaken to about 95 to 100 to be at “an appropriate level.”

Tensions over the BOJ’s role in spurring growth and ending deflation were highlighted last week by lawmakers who said BNP Paribas SA economist Ryutaro Kono was a bad choice for the BOJ Policy Board.

Takeshi Miyazaki, a lawmaker in the Democratic Party of Japan and a leader of an antideflation group within the party, said the candidate should be someone more in favor of monetary easing. Kono wasn’t available to comment Monday.

In a March 24 speech, BOJ chief Shirakawa highlighted risks from keeping monetary policy excessively loose for too long as central bankers seek to strengthen the global recovery from the 2008 financial crisis.

“If low interest rates induce investment projects that are only profitable at such interest-rate levels, this could have an adverse impact on productivity and growth potential of the economy by making resource allocation inefficient,” Shirakawa said at a Federal Reserve conference in Washington.

Japan’s economy, the world’s third-biggest, may be benefiting from increased disaster reconstruction work and reduced production disruptions as Thailand recovers from floods. At the same time, rising oil costs, a weaker yen and nuclear plant shutdowns are swelling energy costs, a drag on the nation’s growth. Imports of liquefied natural gas surged 54 percent in February from a year earlier, the Finance Ministry said last week.