Business confidence among major manufacturers improved on a quarterly basis for the first time in 2 1/2 years, but not as much as the market expected, the Bank of Japan said Wednesday.
The central bank’s closely watched “tankan” survey indicated that big manufacturers are still reluctant to invest and that sentiment at small companies is deteriorating, highlighting the severity of the deepest recession since the war.
The confidence index for big makers rose to minus 48 in the quarter through June, up 10 points from minus 58 in the previous survey, a record low since the survey’s start in May 1974.
But confidence at small companies deteriorated further, the survey said.
Takahide Kiuchi, chief economist at Nomura Securities Co., said the latest tankan confirms that the worst of the recession has passed and reflects a recovery in exports and the impact of government stimulus. But he also said he was concerned about a “big gap” in improvement between export-oriented manufacturers and other companies.
“What is worrying is that companies are still strongly feeling that their facilities and payrolls are excessive,” Kiuchi said. “Their restrained capital investment and hiring could sharply discourage the recovery of domestic demand.”
This means the economy could be hit by a “double-dip” recession when the stimulus measures start fading in or around fall, he added.
Chief Cabinet Secretary Takeo Kawamura also said he was concerned by the anemic improvement.
“We need to be careful about the severe situations small and medium-size companies face compared with big companies,” he said.
He also said the government needs to steadily implement the economic stimulus measures.
The headline reading was worse than the average market forecast of minus 43, and the level remained in minus territory for the fourth straight quarter.
For the next three months through September, the big manufacturers’ confidence index is forecast to pick up another 18 points to minus 30.
The diffusion index presents the percentage of companies reporting favorable business conditions minus that of firms describing an unfavorable environment.
Business sentiment among major nonmanufacturers rose for the first time in 2 1/2 years, although only slightly. Their confidence index climbed 2 points to minus 29, compared with the average projection of minus 26. The major nonmanufacturers’ index is expected to rise 8 points to minus 21 in the next quarter.
Among small manufacturers, the confidence index remained unchanged at minus 57, but the index for small nonmanufacturers dropped 2 points to minus 44, the worst level since September 1998. The small nonmanufacturers’ sentiment deteriorated for the ninth consecutive quarter.
The small companies’ index covering all industries fell 2 points to minus 49.
The small manufacturers’ index is expected to pick up to minus 53 in the next quarter, while the small nonmanufacturers’ index is expected to drop 1 point to minus 45.
The survey showed that big manufacturers’ plan to cut their business investments in fiscal 2009 by 24.3 percent, the largest-ever margin for a June survey.
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