Monday, November 29, 1999

Reuters survey points to improved BOJ tankan

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Japanese manufacturers are more optimistic about economic conditions than for over two years, a Reuters poll showed, suggesting the Bank of Japan's tankan survey due next month will improve by a similar margin.Strong exports to fast-growing Asia continued to drive improvement in manufacturers' sentiment, according to the Reuters report, meaning the BOJ tankan could show big manufacturers' sentiment index was zero in June, the best level in two years.In a sign the pickup is broadening, service-sector firms were far less pessimistic than three months earlier and expected their sentiment to turn positive in the next three months.Companies are likely to revise up their capital spending plans later this year, economists say. That would be a welcome sign of improvement as the BOJ's previous tankan survey showed firms very cautious about spending on plant and equipment.The improvement in business sentiment offers no reason for the BOJ to easy monetary policy further. But the government is likely to continue to look to the BOJ for measures to support growth as the economy remains mired in mild deflation."The rebound in external demand is proceeding much better than I expected," said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance."Capital expenditure will improve in the second half of the year because production is doing so well. But we are still in deflation, and this leaves room for the government to request more of the BOJ."Graphic on Reuters, BOJ surveys: manufacturers' sentiment index in the Reuters Tankan rose by 17 points from March to plus 9, its highest since February 2008 and showing the mood turned optimistic over the three months, with sentiment returning to levels before the Lehman shock.The index is expected to climb a further five points to plus 14 in September.The monthly Reuters poll has a 95 percent correlation with the BOJ's closely watched tankan, a quarterly survey that will next be released on July 1.The previous BOJ tankan for March showed that despite steady improvement in business morale, pessimism still outpaced optimism and companies remained cautious about spending.The BOJ's survey next month is likely to show that the number of optimists matched the number of pessimists, because the Reuters poll swung to a positive from negative territory, according to Meiji Yasuda Insurance's Kodama.Economists closely watch the BOJ's tankan, because the central bank uses the data to guide its policies.Many manufacturers in export-reliant industries complained about the impact of Europe's debt problems and the consequent fall in the euro against the yen, as a stronger yen hurts the competitiveness of their products abroad, according to the Reuters poll.Europe's debt crisis could prove less of a risk to Japan's growth as long as Asian economies, including China, remain strong, economists said."Sovereign debt woes are certainly bad for Europe, but with China growing and the U.S. economy improving, this is supporting Japanese corporate sentiment," said Yasuo Yamamoto, a senior economist at Mizuho Research Institute."The BOJ's tankan is also likely to show improvement. This won't support further easing by the BOJ."The index for service-sector firms improved to minus 8 from minus 22 in March and is expected to rise to plus 5 in September, with retailers, whose sentiment hit a record low in December, showing a marked improvement.But analysts point to increasing signs that companies are gradually increasing capital spending on the back of solid exports to Asia. This bodes well for the next BOJ tankan.Japan's economy grew 1.2 percent in January-March, outpacing growth in the United States and Europe, thanks to brisk exports to fast-growing Asian economies.Economists expect growth to slow in the following quarters as government stimulus targeting the consumption of energy-efficient products fades and European debt woes cloud the outlook."Although orders are coming in as expected, the yen's appreciation against the dollar and the euro is not favourable in terms of profitability," an electrical appliance maker said in the Reuters tankan.Indexes in the Reuters Tankan are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.(Editing by Michael Watson)
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