• Kyodo

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Business sentiment among large Japanese manufacturers improved in March from three months earlier, with a global economic recovery and a weaker yen bolstering the country’s exports, the Bank of Japan’s tankan survey showed Monday.

The key index measuring confidence among companies, such as carmakers and electronics firms, stood at 12, up 2 points from the December survey. But the result was weaker than the average market forecast of 15 in a Kyodo News poll.

The report, a quarterly survey of more than 10,000 companies, is closely watched as the broadest indicator of how Japanese companies are faring.

Analysts say the latest survey suggests many firms remain skeptical about whether the business environment will continue recuperating, given that the outlook for the U.S. and European economies is uncertain.

The first tankan survey since U.S. President Donald Trump took office in January is expected to strengthen the view that the BOJ is unlikely to begin tapering its current aggressive monetary easing this year, economists say.

Aiming to achieve a 2 percent inflation target, the central bank has said U.S. economic policies and Britain’s planned exit from the European Union could become “risks” to Japan’s economy.

“The tankan survey confirmed that companies have the same caution as the BOJ,” said Takuji Aida, chief economist at Societe Generale Securities.

Big manufacturers project the index will deteriorate 1 point to 11 in three months.

As for the U.S. economy, concerns have been mounting in the market over whether Trump will be able to implement his economic and other key policies after his failure to repeal predecessor Barack Obama’s health care law last month.

The diffusion indexes represent the percentage of companies reporting favorable business conditions minus the percentage reporting unfavorable ones.

Since late last year, the yen has stayed on a downward trend against the U.S. dollar amid growing speculation that the interest rate gap between Japan and the United States may widen further. While the BOJ maintains its monetary easing, the Federal Reserve is looking at an interest rate hike.

A weaker yen usually supports the country’s exporters by making Japanese products cheaper abroad and bolsters the value of overseas revenues in yen terms.

Japanese companies expect the dollar to average ¥108.43 for the current fiscal year that started on Saturday.

Among exporters, the index for electrical companies climbed 6 points to 10, and that of automakers rose 8 points to 18.

The index for large nonmanufacturers including the services sectors was 20, up 2 points from the previous survey, in line with the forecast of 20. The improvement came as low interest rates have shored up the real estate and construction industries.

The tankan survey, however, showed big firms across all industries plan to boost capital spending only by an average 0.6 percent this fiscal year through March 2018 from the previous year, indicating their unwillingness to increase investment amid an uncertain economic outlook.

The diffusion index for nonmanufacturers is also forecast to drop 4 points to 16.

The BOJ will “tenaciously maintain” the current easing measures, designed to push down interest rates, for the time being in a bid to provide positive effects on the economy, said Takeshi Minami, chief economist at the Norinchukin Research Institute.

In January 2016, the BOJ decided to apply a negative interest rate of 0.1 percent on some reserves it holds for commercial banks. In September that year, it adopted a “yield curve control” policy, aimed at keeping the key 10-year government debt yield around zero percent by adjusting the amount of its bond buying.

The central bank has pledged to realize 2 percent inflation by galvanizing sluggish domestic demand by driving down interest rates and decreasing borrowing costs at home.

The BOJ surveyed a total of 10,799 companies between Feb. 27 and Friday, of which 99.0 percent responded.

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