Japan recovery hopes up

  • Business
  • Wednesday, 02 Jul 2003

Japan recovery hopes upTOKYO: Japan’s large companies felt unexpectedly more optimistic in the past three months, a key central bank report showed yesterday, raising hopes that the world’s second largest economy may finally be heading for recovery. 

But in a sign that any rebound may not be a strong one just yet, sentiment was forecast to remain flat for the July-September quarter and smaller companies remained downbeat as they battled falling prices and slow domestic demand. 

The Bank of Japan’s quarterly tankan corporate survey for April-June showed that sentiment at large manufacturers, measured as a diffusion index, improved to minus 5 from minus 10. 

A Japanese businessman is all smiles as he passes an electronic display board showing a 195-point surge in the Nikkei-225 average to 9,278 after the release of the latest tankan survey.-AFPpic

It was the strongest reading in more than two years and much better than the median forecast of minus 10 in a Reuters poll of 23 analysts. 

The Tokyo stock market’s key Nikkei average, which surged 14% in the just-ended first quarter of the business year, responded with a gain of 2% yesterday to 9,278.49, its highest close in nine months. 

The tankan diffusion index measures sentiment by subtracting the percentage of companies reporting unfavourable conditions from the number that say they are favourable. 

The survey was conducted as the Iraq war wound down and the effects of Asia’s Severe Acute Respiratory Syndrome (SARS) outbreak were fading. 

Signs that major world economies may pick up later this year are also helping large companies, which are more dependent on exports, in particular to fast-growing neighbour China and to the United States, Japan’s largest single market. 

They expect a rise in capital spending of 4.9% in the business year that began in April, the strongest in 13 years, according to the tankan findings. 

“This is a much better result than expected, and it looks as if a long-awaited recovery in capital spending is on the cards,” said Mitsubishi Securities strategist Norihiro Fujito.  

Adding to evidence of an upturn, a separate Reuters survey released yesterday showed that Japan’s manufacturing activity expanded to a 10-month high in June. 

The overall index in the Reuters/Nomura/JMMA purchasing managers' survey rose to 50.4, climbing above the boom-or-bust threshold for the first time in two months. 

Large manufacturers also see profits rising 11.6% this business year, according to the tankan, though sales will likely fall 1%, showing that cost-cutting and restructuring remain the main drivers of corporate health. 

But some cost cuts at large companies may be coming at the expense of the thousands of smaller firms across Japan that supply them with everything from screws to high-tech devices. Cut-backs at big firms mean less orders for small ones, which have less room to cut their own costs and face difficulties in getting financing from risk-averse banks. 

The tankan reflected these concerns, showing smaller manufacturers only slightly more optimistic, with a rise in the index to minus 28 from minus 29. – Reuters  

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