Sentiment among major manufacturers jumped in the quarter to June, the Bank of Japan’s “tankan” corporate sentiment survey showed Monday, in the latest upbeat sign for the world’s third-largest economy.
The results come days after separate data showed factories put in an unexpectedly strong performance in May, supplying fresh evidence that the government’s huge drive to boost growth may be starting to take hold.
Prime Minister Shinzo Abe’s party faces a House of Councilors election later this month that is widely expected to see a resounding victory for his Liberal Democratic Party, solidifying his power base and giving him the legislative muscle to continue an economy-boosting plan dubbed “Abenomics.”
The quarterly tankan survey showed that large manufacturers’ sentiment rose to plus 4 from minus 8 in the previous quarter, representing the percentage of firms that said business conditions were positive less those that said they were negative.
It is the first time the widely watched poll, which is used by the BOJ to formulate policy, has been in positive territory since September 2011.
“I don’t know if I should credit this to Abenomics or not, but I think the fundamentals of the economy are improving,” said Taro Saito, senior economist at NLI Research Institute.
The survey also showed that big companies are expecting to boost their capital spending by 5.5 percent in the fiscal year to next March, underscoring a jump in confidence among the nation’s producers.
“Companies’ sentiment is improving, profits are improving, so that was a plus for the index,” said Mizuho Research Institute economist Haruka Kazama told Dow Jones Newswires.
Manufacturers, hit hard by the 2008 financial crisis and the 2011 quake-tsunami disaster, have seen their prospects improve as the Abe administration’s prescription for big government spending and monetary easing helped send the value of the yen tumbling. A weaker yen boosts Japanese exporters by making them more competitive overseas while inflating the value of repatriated foreign income.
“For 2013, there are hopes that a weaker yen will help boost exports, and that domestic demand will also be firm,” Kazama said.
“Those bright signs are helping end that putting-off trend,” she added, referring to companies holding off new investment.
On Friday, official data showed that industrial production jumped 2.0 percent in May from a month earlier, adding to Japan’s improving trade picture as exports to the United States and China surge on the back of a weaker yen.
The increase was the most since December 2011 and beat analysts’ forecasts of a 0.2 percent uptick.
Japan’s sleepwalking economy has been given a jolt by the government’s bid to drive growth, with the Tokyo stock market surging to one of the world’s best performers this year.
However, separate figures Friday showed consumer prices remained flat in May and household spending dropped from a year earlier, underlining the hard work that still needs to be done to end years of stubborn deflation.
The BOJ in April set an ambitious target of reaching 2 percent inflation in as many years while also unveiling a huge bond-buying program similar to the current approach of the U.S. Federal Reserve.