Business confidence improved in all industry areas in the January-March quarter for the first time in 10 quarters, but lingering overcapacity at manufacturers suggests a slow recovery in capital investment in the near future, the government said Wednesday.

The Cabinet Office said its Business Survey Index in the reporting quarter stood at minus 37, remaining in negative territory for the fifth straight quarter.

But the index moved upward notably, improving from minus 62 in last year’s July-September period and minus 59 in the October-December quarter.

The index for the forthcoming quarters stood at minus 24 for the April-June quarter and minus 2 for the following quarter.

“Based on the moves of the index, confidence is improving” although it remains in negative territory, Cabinet Office economist Yoshihiko Senoo said.

Particularly notable in the reporting quarter was that confidence improved in all industries covered by the survey. Senoo said this is a “rare” phenomenon, observed for the first time since the July-September period of 1999.

The business confidence index is designed to measure corporate managers’ confidence in the economy. It is calculated by subtracting the percentage of managers who feel the economy will worsen from the percentage of those predicting it will improve.

The latest survey was conducted March 10 on 4,501 companies capitalized at 100 million yen or more, of which 4,066, or 90.3 percent, responded.

A notable negative trend in the latest survey was that the index for capacity utilization at manufacturers remained high, standing at 36 in the January-March quarter, down slightly from 39 in the previous quarter.

In addition, given that the index for the April-June quarter stands at 33, manufacturers apparently feel they will have overcapacity for some time, Senoo said.

Partly in reflection of the overcapacity situation at manufacturers, corporate capital investment showed a continuous declining trend on an all-industry basis, he said.

Capital investment by businesses dropped 0.3 percent in the six-month period from April to September 2001 from the same period the previous year. It fell 7 percent in the following six months.

Planned capital investment for the forthcoming periods remains weak, with that for the April-September period this year to be 5.3 percent lower than a year earlier, and 12.5 percent lower for October to March next year, the survey showed.

“Corporations tend to be modest in investment planning at the beginning of new fiscal year,” Senoo said, noting that the survey was conducted prior to the start of the current fiscal year.

Their investment levels could be revised upward later, he said.

But he added that the high level of overcapacity at manufacturers could keep investment levels low.

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