Business sentiment at Japanese companies improved during the April-June period, a closely watched Bank of Japan survey showed Tuesday, surprising bears who had braced for a reality check on the markets.
Helped by recent stock price rises and better-than-expected export performance, the diffusion index for large manufacturers — a key gauge for the nation’s business confidence — rose by 5 points from the previous quarter to minus 5, according to the BOJ “tankan” survey.
It was a reversal from the 1-point drop seen in March, bringing the DI back to levels last seen in March 2001.
The index measures the percentage of companies that said business is favorable minus those that say the opposite.
Tokyo stocks rallied after release of the central bank’s survey. The 225-issue Nikkei stock average rose 195.38 points, or 2.15 percent, to close at 9,278.49, a nine-month high. The broader Topix index of all first section issues on the Tokyo Stock Exchange was up 12.82 points, or 1.42 percent, to 916.26, the highest finish this year.
Economists were skeptical that the optimism would continue much longer, pointing to a dearth of domestic demand and a cautious outlook by companies for the current business year. The economy’s fate hinges on the dubious strength of its exports, they said.
“Corporations are wringing an already-wrung-out rag to squeeze out earnings this year,” said Kazutaka Kirishima, senior economist at Sumitomo Life Research Institute. “The economy lacks staying power.”
For the three other corporate categories, the DI nudged up a mere 1 point each to minus 13 for large nonmanufacturers, minus 28 for small manufacturers and minus 35 for small nonmanufacturers.
The DI rose in all categories largely because companies upgraded their assessment from “poor” to “not so favorable.” Only 12 percent of large manufacturers and 6 percent of small nonmanufacturers said business conditions were “good.”
“This is no vote of confidence for the economy,” said Yasunari Ueno, chief market economist at Mizuho Securities Co.
The tankan shows the rise in sentiment among large companies accompanied by projections of more business capital spending, up 4.9 percent year-on-year, the first rise forecast in a June tankan in three years. But the increase is due largely to a technical readjustment from a cutback in spending the previous year, Ueno said.
“I doubt very much we’ll see much strength in capital expenditures this year to fuel a strong continuous recovery,” Kirishima said.
Amid sluggish domestic demand, large manufacturers are being propped up by exports, while all companies are making profits by dint of cost-cutting efforts. With more layoffs still to come — 15 percent of companies reported redundancies in the tankan — corporate profits are unlikely to translate into wage increases to help future gains in domestic demand.
Private consumption makes up about 60 percent of the gross domestic product.
Sales among all industries in fiscal 2002 fell 0.5 percent year-on-year, saved from a plunge by the strength of large manufacturers’ exports, which grew 9.3 percent year-on-year, despite worries about the global economy.
But even these exports — virtually the economy’s only functioning engine — are already starting to peter out, the tankan indicates. Large manufacturers projected a 2.9 percent drop this current business year, cautious about the strength of the Asian and U.S. markets for Japanese goods.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.