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Big firms’ sentiment soaring, before dive

Kyodo

Business sentiment at large companies in the second quarter sharply improved from the previous three months, as the yen’s slide triggered hopes of an export rebound and boosted stock prices, a government survey showed Tuesday.

The index, covering firms capitalized at ¥1 billion or more, came to 5.9 in the April to June period, up from 1.0 in the first quarter through March and hitting its highest level since July-September 2011, according to the joint survey by the Finance Ministry and the Cabinet Office.

Confidence at manufacturers jumped to 5.0 from minus 4.6, as Prime Minister Shinzo Abe’s economic policies centering on bolder monetary easing and massive fiscal spending sharply drove down the yen, fanning expectations for an export-led recovery and driving up share prices on the Tokyo Stock Exchange.

Nonmanufacturers’ sentiment rose to 6.4 from 4.0, the survey found.

The index is calculated by subtracting the percentage of firms reporting deteriorating business conditions from those observing improvements.

With the mood improving, large as well as smaller companies across all sectors plan to boost capital spending by 7.2 percent in fiscal 2013, compared with the previous year, the survey further showed.

Looking ahead, large businesses said they expect conditions to continue picking up over the next six months, predicting the confidence index will climb to 14.0 in the July to September period and to 11.5 in the quarter after that.

However, the results were based on valid answers provided by 12,826 companies as of May 15 — before financial markets began to fluctuate wildly on the first signs of skepticism toward Abe’s policies and their potential for shoring up the economy.

Equity market turbulence began May 23, when the Nikkei 225 stock average tumbled 7 percent, undermining hopes that the economy will return to a full-fledged growth path, analysts said.

Deteriorating corporate and household sentiment threatens to shrink domestic demand, with firms reluctant to expand their operations and consumers unwilling to spend against a backdrop of pessimism about the economic future, they said.