Big Japan Firms More Upbeat Despite Yen - Wall Street Journal

TOKYO—Big Japanese companies turned upbeat on business conditions in the third quarter, a government survey showed, with the nation's recovery from the March 11 disasters boosting sentiment despite the strong yen and threat of a global economic slowdown.

An index measuring the mood of big companies in a joint survey by the Finance Ministry and Cabinet Office improved to plus 6.6 in the July-September period, from minus 22.0 in the previous quarter.

The result was better than the plus 4.4 that companies had forecast for the quarter in the previous April-June survey. The survey, released Monday, defines big companies as having ¥1 billion ($13 million) or more in capital.

"The post-quake economic recovery seems stronger than expected," in part as companies succeeded in quickly restoring disrupted supply chains, said Mizuho Research and Consulting senior economist Norio Miyagawa.

The survey is seen as an early indicator of how the Bank of Japan's quarterly tankan survey of business sentiment, due next month, may turn out.

But economists said business optimism may yet be blunted by the soaring yen as it makes Japanese products less competitive overseas and eats into earnings repatriated to Japan. Slowing growth in the U.S. and other key overseas markets, as well as financial market turbulence stemming from concerns over European sovereign debt, are also complicating the outlook.

In a sign of increased cautiousness, big companies said they expect the index to stand at plus 8.1 in October-December, down from a previously forecast plus 11.3, before falling back to plus 6.0 in the January-March quarter.

The index measures the percentage of companies saying business conditions are better than in the previous period, minus the percentage of firms saying they are worse. Monday's survey polled companies on their assessment of conditions as of Aug. 15.

The dollar dropped to a post-World War II record low at ¥75.94 on Aug. 19.

Meanwhile, small and medium-sized companies, which account for the bulk of the Japanese economy, were still pessimistic in the July-September period, but less than before, the survey showed.

The index for such companies was still solidly in negative territory at minus 22.2 in July-September, compared with minus 41.1 in the previous quarter. The companies expect the index to come in at minus 11.5 in October-December, and minus 10.6 in January-March.

Other data released Monday underscored the continued fragility of Japan's economic recovery. The tertiary industrial activity index was down 0.1% on month in July, a report from the Ministry of Economy, Trade and Industry showed.

Write to Andrew Monahan at andrew.monahan@dowjones.net

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