Confidence among large Japanese manufacturers improved in the first quarter, the Bank of Japan’s latest “tankan” business sentiment survey showed Monday, offering up cautious optimism from the country’s top firms.
The results marked the first improvement in three quarters, with companies expecting a pickup in sales and profits. But they were cautious in their capital spending plans and the figures remained in negative territory, meaning a majority of surveyed firms are pessimistic about the future.
“Sentiment is getting better broadly, but the improvement isn’t as strong as expected,” Hideki Matsumura, senior economist at Japan Research Institute, told Dow Jones Newswires.
“Exports need to increase and push up capital investment. Although domestic demand appears solid, the rest will depend on how quickly external demand recovers.”
The latest BOJ tankan showed sentiment at minus 8 for big firms between January and March from minus 12 three months earlier.
The figures represent the percentage of firms saying business conditions are good minus those saying they are bad and are a key measure used by the BOJ in formulating monetary policy.
The poll comes days after official figures showed factory output slowed in February, highlighting the weak state of the world’s third-largest economy and underscoring the size of the government’s task in sparking sustained growth.
The BOJ holds a policy meeting this week as its new governor, Haruhiko Kuroda, talks up his plans to stoke the economy and reverse years of falling prices.
His vow to beat deflation, a mantra led by his boss, Prime Minister Shinzo Abe, has stoked speculation that the BOJ will launch a new wave of aggressive policy measures that tend to weaken the yen, helping the country’s exporters.
Japan’s overall economic picture remains unsteady, but the nation squeaked out of recession in the last quarter of 2012, offering up some hope for a sustained recovery.
The 0.2 percent expansion in GDP on an annualized basis in the quarter to December was welcome news for Abe, whose first few months in office have seen renewed optimism over the state of the economy, which has suffered growth-sapping deflation for years.
Falling prices are bad for the economy because they encourage consumers to put off spending in the belief goods will be cheaper in the future, softening demand and hurting producers.
Markets have cheered Abe’s policies, sending the benchmark Nikkei 225 stock index soaring in the past couple of months, while speculation over further monetary easing measures has helped push down the value of the yen, although Tokyo has faced criticism it was engineering the unit’s decline.
Manufacturers have been helped by the weakening in the yen, after the unit hit a record around the 75-level against the dollar in late 2011 and remained strong through most of last year.
A strong yen makes Japanese products less competitive overseas and shrinks the yen value of repatriated foreign income.
In 2012, Japan’s factory production weakened slightly after a decline in 2011 when industry was hammered by the quake-tsunami disaster and Fukushima nuclear crisis.