TOKYO — A key central bank survey offered a cautiously optimistic assessment of corporate Japan, where business confidence is improving even as the global economy’s prospects darken.
In the Bank of Japan’s quarterly "tankan" survey of business sentiment released Monday, the main index for big manufacturers climbed back into positive territory as a recovery from the March 11 earthquake and tsunami took hold. The latest reading stood at 2, up from minus 9 three months ago.
The figure represents the percentage of companies saying business conditions are good minus those saying conditions are unfavourable, with 100 representing the best mood and minus 100 the worst.
The earthquake and tsunami disrupted parts manufacturing, leading to critical shortages for industries such as automobiles and electronics. The fallout extended worldwide, with the International Monetary Fund estimating that global car production tumbled up to 30 per cent in the two months after the disaster.
The economic aftershocks dragged Japan back into recession and resulted in a sharp deterioration in confidence that sent the main tankan index to its lowest level in more than a year.
But factories have put supply disruptions largely behind them now. Industrial production figures last week showed that output had nearly recovered to pre-quake levels. Exports in August rose for the first time in six months.
Monday’s numbers "clearly support our view that Japan’s economy continues to recover, largely due to the improvement of auto sector, even with intensified headwinds from slower global growth and yen appreciation," said Masamichi Adachi, senior economist at JPMorgan Securities Japan, in a research note.
The mood among big non-manufacturers also climbed into positive territory to
1 from minus 5 in June.
Smaller enterprises improved as well, though they weren’t feeling quite as optimistic. The confidence index for medium-sized manufacturers rose to minus 3 from minus 12. The small manufacturers’ index stood at minus 11 from minus 21.
The future appears less certain. Companies in the tankan gave a mixed picture of the months ahead, reflecting deepening worries about global growth, Europe’s debt problems and a persistently strong yen.
The IMF last month sharply downgraded its economic outlook for the United States and Europe through the end of next year. Its chief economist described the world economy as entering a "dangerous new phase."
What happens elsewhere matters to Japan because it relies heavily on exports to drive growth. Any slowdown in overseas demand could thwart progress made since the disaster.
Exporters are also grappling with a strong yen, which surged this year to post World-War II highs against the dollar as the U.S. central bank pursued stimulus policies that contributed to a weaker greenback. When the yen climbs, it reduces the value of exporters’ overseas profits when repatriated to Japan.
Officials have expressed concern that the yen’s prolonged strength could lead to a hollowing out of Japanese industry. Already, companies such as Nissan Motor Co. and Panasonic Corp. have announced plans to shift more production overseas.
The survey forecasts business sentiment among large manufacturers to rise to 4 over the next quarter. Medium-sized manufacturers also expect a slight improvement. But small manufacturers and non-manufacturers predict business conditions to either stay flat or deteriorate.
The tankan, which helps guide monetary policy, showed that large companies overall plan to boost capital spending by three per cent this fiscal year through March 2012. The figure is down from 4.2 per cent in the June survey.
Large manufacturing companies assume an average exchange rate of 81.15 yen per dollar for this fiscal year compared with current rate of around 77 yen. The discrepancy could mean firms will have to revise down revenue and profits forecasts later in the year.
The Bank of Japan surveyed 10,910 companies nationwide. About 99 per cent responded.