Japan's Tankan Sentiment Index Climbs Least in Six Quarters
Confidence among large Japanese manufacturers rose the least since early 2009 in September, and companies forecast that pessimists will outnumber optimists by year-end, as a rising yen threatens the nation’s recovery.
The Tankan index of sentiment climbed 7 points in September to 8, the Bank of Japan said in Tokyo today. The figure compares with a 15-point increase in June. Confidence is expected to fall to minus 1 in December, the report said.
Stagnating sentiment adds to the case for the Bank of Japan to ease monetary policy as Prime Minister Naoto Kan compiles a stimulus plan to counter the effect of the yen’s 10 percent surge against the dollar this year. The gains forced Murata Manufacturing Co., an electronics components maker, to announce it will cut most temporary jobs and move production abroad.
“The BOJ may have little choice but to take some action at its next meeting” on Oct. 4-5, said Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting Co. in Tokyo. “The yen is still on the rise even though the government intervened in currency markets and pledged an extra budget.”
Prospects for additional BOJ liquidity injections helped bolster stocks, with the Nikkei 225 Stock Average up 0.3 percent at 10:43 a.m. The yen traded at 83.91 per dollar, from 83.89 before the report was published. Big manufacturers see the currency trading at 89.66 this fiscal year.
“We have to reduce the number of temporary workers in Japan,” Murata President Tsuneo Murata said yesterday in an interview at the company’s headquarters in Kyoto. “We never thought the yen would become this strong.”
Confidence among large manufacturers was forecast to climb to 7, according to the median estimate of 19 economists surveyed by Bloomberg News.
Politicians have already indicated the BOJ could do more, with Economy Minister Banri Kaieda saying on Sept. 27 that additional liquidity injections by the Bank of Japan may be effective in influencing the yen. Vice Finance Minister Mitsuru Sakurai also said on the same day that increasing government bond purchases is one policy option for the central bank.
Governor Masaaki Shirakawa and his board will deliberate policy at a meeting next week. He reiterated this week that the bank stands ready to take action when necessary. They last eased policy by expanding a credit lending program to 30 trillion yen ($357 billion) on Aug. 30.
Recent data point to a tempering rebound in the economy, with growth last quarter decelerating to a 1.5 percent annual pace, compared with 5 percent in the first three months of the year. Exports grew at the slowest pace this year in August.
“There’s a lot of uncertainty about where the economy is headed,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. “With companies this cautious, they’re likely to be careful about spending and hiring.”
Canon, the world’s largest camera maker, estimates that operating profit will shrink by 4.7 billion yen for every 1 yen the currency strengthens beyond 90 per dollar in the second half of 2010.
Even a yen level of 90 to the dollar may not be enough to prevent production draining out of Japan, Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association, said Sept. 16. Shiga is also the chief operating officer of Yokohama- based Nissan, Japan’s third-biggest carmaker.
Automakers appear to be especially concerned about the outlook and expect the sentiment index to decline 38 points in three months’ time, the biggest drop for the industry since the central bank started tracking confidence by sector in 1992.
In addition to the currency, growth may be affected by the ending of incentives for purchases of energy-efficient cars this month. Kan asked his ministers to compile additional measures to supplement a stimulus package he unveiled on Sept. 10. The extra budget for the fiscal year ending March 2011 may be as much as 4.6 trillion yen, a government official said on condition of anonymity earlier this week.
Large companies plan to boost spending by 2.4 percent in the year ending March 31, today’s report showed. Economists forecast a 3 percent increase. The figures are based on the new accounting standard for lease transactions. Based on the previous accounting rule, companies planned to increase spending by 4.4 percent in June.
“Capital spending is increasing, but the momentum of these gains has been weak,” Dai-Ichi’s Shinke said. “Capital spending isn’t strong enough to make up for the slowdown in exports and fading of stimulus measures.”
The Tankan was conducted from Aug. 23 to Sept. 28 and surveyed 11,283 businesses. About 70 percent to 80 percent of the responses were collected by Sept. 7, more than a week before the government intervened in currency markets.
“Japan’s economy may experience a severe pullback in the fourth quarter and the first quarter of the next year after last-minute buying of cars boosts consumer spending in the July- September period,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. “There’s a chance that Japan will dip into a recession.”
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