Big Japanese manufacturers turned optimistic for the first time since September 2011, indicating confidence in Prime Minister Shinzo Abe’s reflationary policies even after stock market volatility.
The quarterly Tankan index for large manufacturers rose to plus four in June from minus eight in March, the Bank of Japan said in Tokyo today. A positive figure means optimists outnumber pessimists. The median estimate of 22 economists surveyed by Bloomberg News was for a plus three reading. Large companies from all industries plan to increase capital spending 5.5 percent in this fiscal year as the government looks to promote business investment.
Japan’s economy is strengthening, with data last week showing factory output rose the most since December 2011, retail sales climbed and core consumer prices ended a six-month slide. Abe’s task now is to put the world’s third-largest economy on a sustainable recovery path and spur private sector activity and wage growth.
“Companies are becoming pretty confident about the economy’s outlook,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo. “They still have scope to revise upward their profit forecasts and capital investment plans.”
The government is considering various tax reforms to promote capital investment including allowing companies to claim depreciation in a lump-sum, Economy Minister Akira Amari said today in Tokyo.
Companies on the Nikkei 225 Stock Average estimated aggregate operating income of 19.7 trillion yen ($198 billion) this fiscal year, up from 16 trillion yen in the year ended March, according to 178 company forecasts compiled by Bloomberg. Isuzu Motors Ltd. said May 14 it will raise capital spending almost three-quarters this year to 100 billion yen.
The Topix index rose 0.9 percent as of 1:44 p.m. in Tokyo. The stock gauge has fallen more than 10 percent from a four-year high on May 22, paring its increase this year to 33 percent. The yen has weakened 13 percent this year against the dollar and traded at 99.34 in Tokyo.
Japan’s gross domestic product grew an annualized 4.1 percent in the first quarter and is forecast to expand until the second quarter of 2014 when a planned sales tax increase may cause an economic contraction.
“Japan’s recovery is gathering pace gradually as sentiment improves on a weak yen, higher stocks and solid consumer spending,” said Kyohei Morita, chief Japan economist at Barclays Plc. in Tokyo. Today’s data “signals market corrections from late May didn’t have a major impact on business decisions.”
Confidence may be helped by the government’s growth strategy, a plan for tax cuts on fixed investment, the continued impact of fiscal stimulus and a rush in demand ahead of the planned consumption tax rise, according to Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.
Even so, some firms may be holding back on spending because of concerns over stock and bond market volatility, and higher fuel costs stemming from the weaker currency and the closure of nuclear power stations, Ueno wrote in a report last month.
Large Japanese manufacturers are more confident for the third quarter, with the outlook index -- which gauges how firms see conditions in three months -- at plus 10 in today’s report. They forecast the yen will trade at 91.20 per dollar on average in the fiscal year ending March 2014, compared with a projection of 85.22 in the previous report.
Today’s 5.5 percent planned increase in capital spending this fiscal year compares with a forecast 2 percent drop in the March report. The index for small non-manufacturers was at minus four, the highest since 1992, and the small manufacturer index was at minus 14.
The BOJ surveyed 10,623 companies from May 28 to June 28, with a 99 percent response rate.