Confidence at Japan’s large manufacturers improved to its highest level in 13 years in the three months to June, underlining the most powerful economic recovery since the economic bubble burst in the early 1990s, according to the Bank of Japan’s key business survey released Thursday.
The quarterly “tankan” showed the business confidence index for large manufacturers hit 22, up from 12 in the March survey and the fifth consecutive quarterly rise. The figure for June is the highest since August 1991, when the index stood at 25.
The business confidence index represents the percentage of companies reporting conditions are good minus those reporting otherwise.
Chief Cabinet Secretary Hiroyuki Hosoda welcomed the latest tankan results, saying they show the Japanese economy “is finally entering a stage of growth.”
“This is a happy announcement,” Hosoda told a regular news conference Thursday afternoon.
He urged caution, however, noting Japan has seen recovery signs fade away many times during the past decade.
“It was a big surprise. Throughout the survey, it is hard to find negative factors,” said Hideki Matsumura, senior economist at Japan Research Institute Ltd.
Strong exports fueled the optimism among steel and other raw materials industries and electronics companies. Brighter personal spending amid strong demand for digital electronics items also supported the sentiment, economists said.
“Expectations that the country may be ending its deflationary trend prompted consumers to start spending more,” said Ryutaro Kono, chief economist at BNP Paribas Securities (Japan) Ltd. “Slight improvement in the labor market also supported consumption.”
Overseas demand and better domestic consumption led to bullish capital spending and shored up the ongoing recovery, the economists say.
In an encouraging sign, the tankan shows big manufacturers are planning to spend 20.4 percent more in capital investments for fiscal 2004 than the previous year.
The upbeat sentiment also spread to the nonmanufacturing sector, confirming the strength of the recovery.
The sentiment index for large nonmanufacturers improved to 9, the highest figure since February 1992.
“In particular, figures for personal services as well as food and accommodation services were good, indicating consumer sentiment has been improving,” Matsumura said.
Some economists said, however, that worries over an expected slowdown in China’s overheated economy and high oil and raw materials prices clouded many big companies’ outlooks.
The index showing large manufacturers’ forecast for the next three months is 21, compared with June’s 22.
The tankan shows that the economic recovery is also seen in smaller-scale businesses.
The index for small manufacturers improved to 2 in June from minus 3 in March, turning to a positive figure for the first time since November 1991. It improved for nine quarters in a row.
The index for small nonmanufacturers improved to minus 18 from minus 20 in March. It is the fifth consecutive quarterly rise and the highest level since September 1997.
The BOJ sent survey questionnaires to 10,416 companies nationwide and received responses from 97.1 percent of them between May 26 and June 30.