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Japan Tankan Survey Shows Economic Rebound Gathering Steam

Japanese companies forecast increased hiring and investment as demand picks up this year after the March earthquake that triggered the biggest plunge in the Tankan survey of sentiment since 2009.

Large companies said they will boost capital spending 4.2 percent in fiscal 2011, exceeding analysts’ forecasts for a 2.4 percent increase. The quarterly Tankan index of sentiment at large manufacturers fell to minus 9 in June from 6 in March, the Bank of Japan said in Tokyo today. A negative number means pessimists outnumber optimists.

Manufacturers forecast profits to surge 21 percent in the six months ending March 2012 and said they will hire more people this year, today’s report showed. Nomura Securities Co. said the economy is having a V-shaped recovery after industrial output grew the most in more than 50 years in May as carmakers such as Toyota Motor Corp. and Honda Motor Co. restored operations.

“Corporate plans for capital spending and hiring signal that the effect of the earthquake is only temporary,” said Takahide Kiuchi, chief economist at Nomura in Tokyo. “Japan’s rebound has been stronger than expected.”

The yen traded at 80.71 per dollar as of 12:03 p.m., unchanged from before the report was published. The Nikkei 225 (NKY) Stock Average rose 0.5 percent after the Greek parliament supported a European bailout. Large manufacturers forecast on average that the yen will trade at 82.59 per dollar in the year through March 2012, according to today’s report.

Lower Than Forecast

Manufacturer sentiment missed the median estimate of 27 economists surveyed by Bloomberg News for a reading of minus 7. Companies see the index of sentiment improving to 2 in September, today’s report showed. Large firms will take on 0.4 percent more new graduates this year after cutting back 31 percent in the previous year.

“The numbers were all slightly negative, but this is a temporary phenomenon,” Economic and Fiscal Policy Minister Kaoru Yosano said at a press conference in Tokyo today. “Economic activity will make big advances as we approach the year-end. I am confident that we will see growth next year.”

The unemployment rate unexpectedly fell to 4.5 percent as more people gave up on looking for work and disaster areas were excluded from the survey, according to a government report released in Tokyo today.

Toyota’s Optimism

Toyota Motor Chief Executive Officer Akio Toyoda said this week that the carmaker’s recovery from the quake has “far exceeded expectations,” with production in Japan to return to normal after July and North American output rebounding by September.

Honda Motor, Japan’s third-biggest automaker, said last week it will hire 1,000 temporary workers in Japan to increase production.

The resumption of operations at plants of parts makers is helping ease automakers’ supply constraints. Renesas Electronics Corp. (6723), the largest manufacturer of microcontrollers used in cars, said on June 10 output at its main plant damaged by the quake will be restored to the pre-disaster level by the end of September, one month earlier than it previously forecast.

The world’s third largest economy shrank at a 3.5 percent annualized pace in the three months through March, the second quarter of contraction, as consumer spending and corporate investment slumped in the aftermath of the quake.

A further 3 percent shrinkage is expected in the second quarter, before growth resumes in the second half of the year, according to the average forecast of 43 economists in a survey by the government-affiliated Economic Planning Association released on June 8.

Reconstruction Spending

Prime Minister Naoto Kan is planning a second extra budget totaling about 2 trillion yen ($25 billion) to follow a 4 trillion yen plan approved by parliament in May. Kan, whose public approval fell after the quake, said this week he would step down when the budget and two other bills pass in parliament.

Recent data indicates that the recovery in the corporate sector may be at risk. Machinery orders, an indicator of future capital spending, dropped for the first time in four months in April. Exports fell more than economists projected in May from a year earlier. On a seasonally adjusted basis the shipments increased 2.5 percent in May from April.

Forecasts by Panasonic Corp. (6752) and Hitachi Ltd. for weaker earnings have added to signs of depressed demand. Monetary tightening by Asian economies grappling with inflation means that Japanese companies also can’t count on customers within the region for boosting sales.

Panasonic Profit

Panasonic last week forecast full-year profit will tumble 59 percent in the fiscal year started April after the earthquake disrupted factories and suppliers. Sales of car-related components and mobile phones will probably drop because of supply-chain bottlenecks, Panasonic’s Chief Financial Officer Makoto Uenoyama said.

Hitachi Ltd. last month forecast net income will drop 16 percent this fiscal year after the temblor crippled its factories.

Production gains may be limited by restrictions on power use after shutdowns of nuclear plants around around the nation cut supply, according to Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo.

“The peak of electricity demand will be in the summer, so production will probably stay flat in July and August,” he said. “It’ll still take some time for production levels to return to where they were before the earthquake. That’s not something we’ll be able to see this quarter.”

Weak Demand

Household demand has also been weak, with consumer outlays sliding 1.9 percent in May, a report today showed, a larger drop that predicted by analysts. Consumer prices excluding fresh food increased 0.6 percent in May, the government said.

The U.S. economic recovery has been slower than anticipated, Federal Reserve Chairman Ben S. Bernanke said last week. In China, a manufacturing index fell to the lowest level since February 2009 as Premier Wen Jiabao’s campaign to tame inflation damps economic growth. China is Japan’s largest export market and the U.S. is the second largest.

Today’s report confirms the central bank’s prediction that the economy will start recovering this year, easing the case for policy makers to add further stimulus, an economist said.

“The Tankan survey results support the BOJ’s view that the economy will rebound,” said Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting Co. in Tokyo. “Given that view, there’s little need for the BOJ to ease monetary policy further right now.”

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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