Japan’s Business Pessimism Shows Challenges for Kuroda: Economy
Confidence among big Japanese manufacturers improved by less than economists estimated, bolstering the case for Bank of Japan Governor Haruhiko Kuroda to expand stimulus at his first policy meeting this week.
The quarterly Tankan (JNTSMFG) for large manufacturers was at minus 8 in March, rising from minus 12 in December, the central bank said in Tokyo today, as companies said they’ll cut investment by the most since the global recession. Stocks fell, with the Topix Index (TPX) dropping the most in two years.
Lingering pessimism may make it harder for Kuroda to achieve a 2 percent inflation target as he needs companies to boost spending and wages to help revive growth. The Tankan reading adds to skepticism he can end 15 years of deflation through expanded stimulus alone, after former BOJ Deputy Governor Kazumasa Iwata said last week that Kuroda’s two-year deadline for achieving his price target wasn’t possible.
“Keeping expectations high will be extremely difficult for Kuroda,” said Nobuyasu Atago, principal economist at the Japan Center for Economic Research in Tokyo and a former BOJ official. “The new central bank leadership will probably use the Tankan result as a reason to add monetary stimulus, as they’ll argue that the BOJ shouldn’t be throwing cold water on business confidence.”
The median estimate of 24 economists surveyed by Bloomberg News was for a Tankan reading of minus 7. A negative figure means pessimists outnumber optimists. The BOJ meets April 3-4.
The Nikkei 225 (NKY) Stock Average closed down 2.1 percent in Tokyo, paring its gain this year to 16.7 percent, with the Topix down 3.3 percent today. The yen was 0.4 percent higher at 93.84 per dollar at 3:49 p.m. in Tokyo.
Separate data today showed that manufacturing in China expanded at a faster pace last month, indicating a recovery in the world’s second-largest economy is sustaining momentum. At the same time, the reading on the official purchasing managers’ index was below forecasts.
South Korean exports rose less than forecast as improving global demand was tempered by the won’s 20 percent gain against the Japanese currency in the last six months.
Large Japanese manufacturers are more optimistic about the second quarter, with the outlook index -- which gauges how firms see conditions in three months -- at minus 1 in today’s Tankan.
“The outlook for June is rosier than the March number as companies are expected to post bigger profits,” said Takuji Okubo, chief economist at Japan Macro Advisors, who formerly worked at Goldman Sachs Group Inc.
Toyota, the world’s largest carmaker, agreed this month to pay its employees in Japan the biggest bonus in five years and Kubota Corp (6326)., a tractor maker, predicts record sales.
A separate release from the BOJ today showed that household sentiment on the economy rose to a more than 5-year high last quarter. The percentage of households saying they expect prices to rise in a year was the highest since September 2008.
Kuroda last week said the BOJ will consider combining its monthly bond purchases and asset-purchase fund, as well as buying more debt with longer maturities and scrapping a rule that limits the scale of bond buying. He has also suggested bringing forward open-ended asset purchases planned for 2014.
The central bank currently buys government bonds with maturities of up to three years, as well as exchange-traded funds, real-estate investment trusts and other risk assets, through a fund targeted to reach 76 trillion yen ($809 billion) by the end of this year.
Setting a target for the size of the balance sheet as a means of easing monetary conditions is one policy shift being considered, people familiar with the central bank’s discussions said last week. They asked not to be identified as the matter was still under discussion. The bank is considering using its balance sheet to measure monetary easing, Reuters reported last week.
While the yen’s decline is set to improve the outlook for exporters in coming months, it’s already swelling the import bill as nuclear-plant shutdowns force increased imports of fossil fuels. Exports (JNTBEXPY) fell 2.9 percent from a year earlier in February, while imports surged 11.9 percent.
“Sentiment among steelmakers worsened this time, and that’s a sign the yen’s weakness is negative for those who have to import a lot,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “Demand for employment seems to be picking up slightly, but we have yet to see signs that wage increases will prop up consumption.”
Large Japanese companies from all industries plan to decrease capital spending 2 percent in the fiscal year through March 2014, today’s Tankan showed, compared with a revised 5.2 percent increase in the year ended March 31.
Rising import prices due to the weaker yen add to cost pressures for manufacturers, while exports have fallen in eight of nine months through February.
Japanese shipbuilders may post losses next fiscal year amid a global glut in capacity, Shinjiro Mishima, president of Japan Marine United Corp (UNSHZ), the nation’s second-biggest shipbuilder, said last week.
Large manufacturers forecast on average that the yen will trade at 85.22 per dollar in the fiscal year through the end of March 2014, according to today’s report. The median forecast in a survey of analysts by Bloomberg News is for the currency to be at 97 per dollar through the same period.
The BOJ surveyed 10,698 companies from Feb. 25 to March 29, with a 98.9 percent response rate.
Elsewhere in the Asia-Pacific region, South Korea’s consumer prices fell 0.2 percent in March from a month earlier. Indonesia’s inflation accelerated for a third month in March, according to economists surveyed by Bloomberg News.
Turkey is due to report fourth-quarter gross domestic product data. In the U.S., construction spending probably rebounded in February from a month earlier, a Bloomberg survey showed. The Institute for Supply Management factory index may show a reading of 54 for March, compared with February’s 54.2, according to a separate Bloomberg survey.
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