Japan Tankan Stagnates With Yen Seen as Threat: Economy

Japan Tankan Confidence Stagnates as Gains in Yen Seen
Kanto Auto Works Ltd. employees assemble a Toyota Motor Corp. vehicle, on the production line of the company's Iwate Plant in Kanegasaki Town, Iwate Prefecture, Japan. Photographer: Kiyoshi Ota/Bloomberg

Sentiment among Japan’s largest manufacturers failed to improve in March as executives predicted the yen will rebound against the dollar, hurting exporters’ sales and profits.

The quarterly Tankan index was unchanged from minus 4 in December, the Bank of Japan said today in Tokyo. That was less than the median estimate of 25 economists surveyed by Bloomberg News for a reading of minus 1. A negative number means pessimists outnumber optimists.

A weakening currency and gains in stock prices this year are giving only a limited boost to confidence as exporters struggle to regain ground lost when the yen surged to a postwar record in October. Today’s report showed that executives expect the sentiment index to remain negative at minus 3 in June and the yen to strengthen about 6 percent from today’s level to average 78.14 per dollar this fiscal year.

“The Tankan signals business managers think it will take awhile for the economy to regain momentum,” Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former BOJ official. “They’re still concerned about the risk of the yen appreciating again because they’ve been traumatized by a strong currency.”

The yen weakened 0.3 percent to 83.18 per dollar as of 12:02 p.m. local time. It slid 10.4 percent last quarter versus nine developed-nation peers, according to data compiled by Bloomberg. The Nikkei 225 Stock Average rose 0.8 percent after reports of stronger-than-forecast consumer sentiment and spending in the U.S.

Currency Forecast

The currency forecast was the strongest since comparable data was made available starting from the March 1997 survey, the BOJ said. The level is also stronger than the 82 break-even point companies said they can remain profitable at in a government survey released in February.

Large companies surveyed in the Tankan said capital spending would be unchanged this year from last year, today’s report showed.

Sony Corp. more than doubled its annual loss forecast, while Panasonic Corp. and Sharp Corp. predicted record losses. The survey indicated the nation’s largest service providers fared better in the quarter, with their sentiment rising to 5, the highest since June 2008, today’s report showed.

In South Korea, consumer prices rose 2.6 percent in March from a year earlier, the slowest pace in 20 months and Moody’s Investors Service raised the outlook on the country’s A1 credit rating to positive from stable, citing nation’s fiscal strength and increased resilience to market turmoil.

China PMI

China’s Purchasing Managers’ Index rose to a one-year high of 53.1 in March, China’s logistics federation and the National Bureau of Statistics said yesterday. The gauge has a pattern of rising each March. In contrast, a PMI from HSBC Holdings Plc and Markit Economics showed manufacturing contracting and export orders falling.

Home-building approvals in Australia unexpectedly declined in February by the most in four months. A report later today is forecast to show exports in Indonesia climbed 6.4 percent in February from a year earlier, according to economists surveyed by Bloomberg News.

The unemployment rate in the Euro region probably rose to 10.8 percent in February while a PMI manufacturing gauge was unchanged at 47.7 in March, according to Bloomberg surveys. In the U.S., the ISM’s factory index probably rose to 53 last month from 52.4 in February, economists said.

Japan Output

A government report last week showed that Japan’s industrial production unexpectedly dropped in February after previously rebounding as disruptions from flooding in Thailand faded away. Policy makers are counting on reconstruction spending after last year’s earthquake and tsunami to help propel a rebound from a contraction in 2011.

“Companies are concerned about global demand, oil prices and the slow boost from reconstruction,” said Hidenobu Tokuda, an economist at Mizuho Research Institute Ltd., who accurately predicted large manufacturer sentiment. “Recent economic data and financial markets have shown Japan’s recovery is underway, but that can’t instantly erase corporate pessimism.”

Gross domestic product may have expanded an annualized 1.7 percent last quarter after a 0.7 percent contraction in the final three months of last year, according to the median estimate in a Bloomberg News survey of analysts.

Postwar High

The Japanese currency hit a post-World War II high of 75.35 against the dollar in October, eroding profits of exporters earned abroad and jeopardizing their competitiveness. Expanded monetary stimulus by the central bank on Feb. 14 aided weakening.

Sony, Japan’s largest electronics exporter, said in February that it predicted its loss in the year ended on March 31 would widen to 220 billion yen, more than double its previous estimate. Panasonic, Japan’s biggest appliance maker, also widened its annual net-loss forecast to a record 780 billion yen, it said in February. Sony earned 70 percent of its revenue outside Japan and Panasonic 48 percent.

BOJ may consider expanding its asset-purchase program if the yen moves “drastically,” Dai-Ichi Life Research’s Kumano said.

BOJ policy board members are scheduled to meet April 9-10 and April 27. The central bank held off from expanding asset purchases at its meeting in March as it monitored improvements in the economy. It expanded bond purchases by 10 trillion yen and set a 1 percent inflation goal in February. Consumer prices excluding fresh food rose 0.1 percent in February.

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