TOKYO (MNI) – Japanese consumers continue to be less pessimistic
about the nation’s economic outlook than three months ago, improving for
the fourth consecutive quarter and continuing to rebound from the lowest
level marked in March 2009, according to the results of the Bank of
Japan’s quarter survey released on Thursday.

The consumer economic sentiment diffusion index stood at -62.0 in
March, improving from -67.0 in December 2009, -72.3 in September and the
record low of -88.9 hit in March 2009.

The index’s level at -62.0 was the highest in two years since March
2008, when it was at -57.7.

The improving sentiment is consistence with the results of recent
government surveys.

The consumer confidence index posted the second consecutive monthly
gain, rising to 39.8 in February from 39.0 in January, as fears of job
and wage cuts continued to ease and more people were still willing to
buy durable goods, the Cabinet Office said in March.

This prompted the Cabinet Office to upgrade its assessment, saying:
“Consumer confidence is nearly flat.”

The BOJ and government polls suggest that Japan’s economy hit
bottom in the first quarter of 2009 and is likely to continue improving,
albeit very moderately.

The headline diffusion index subtracts the number of consumers who
say economic conditions are worse than they were a year ago from those
who say they have improved.

Although it has improved steadily recently, the level of the index
is still very low, showing that consumers are reeling from the impact of
job and wage cuts.

The percentage of respondents who said that their household income
had fallen from a year earlier stood at 56.7%, down from 59.8% in the
previous survey.

The survey also showed that 40.2% of those polled said that their
income will likely fall in the coming year, down from 43.0% in the
December survey.

The quarterly survey showed that concern about an economic recovery
among consumers has somewhat eased, thanks to the effects of the
government’s economic stimulus measures that have supported durable
goods purchases.

On the level of interest rates on savings and loans, 50.1% of the
surveyed said it is too low, up from 48.8% in December and 43.7% in
March 2009, which was the lowest level since the BOJ began compiling the
data in September 2006.

The BOJ has maintained the target for the overnight lending rate
among commercial banks practically zero, at 0.1%, since lowering it from
0.3% in December 2008. A series of liquidity injection programs
conducted by the central bank over the past year has also helped keep
longer-term rates low.

The BOJ doesn’t ask the respondents whether they are talking about
borrowing costs or returns on savings and investments.

The BOJ survey also showed that medium- to long-term inflation
expectations are being relatively well anchored.

The number of consumers who expect Japanese consumer prices to rise
in the next year fell to 32.2% in March from 33.8% in December, while
50.2% said prices will be little changed, compared with 46.2%.

The survey showed that 16.9% said prices will fall for the next
year, down from 18.4% three months ago.

Japan’s core consumer inflation rate fell 1.2% in February, posting
the 12th straight year-on-year drop, after falling 1.3% in January.

Continued sharp discounts on durable goods — heaters/air
conditioners, flat-screen TVs and personal computers — led the price
drop, overwhelming a year-over-year rise in gasoline and heating oil
costs (lower utilities still kept overall energy costs down).

The 1.2% drop in the core CPI was the smallest fall since -1.1%
marked in May 2009, the data released by the Ministry of Internal
Affairs and Communications showed.

Looking five years ahead, 9.1% of the respondents said prices will
fall further, down from 11.8% in the previous survey, suggesting that
the public’s medium-term inflation expectations that the BOJ is closely
watching are relatively stable.

The BOJ survey, conducted between Feb. 11 and March 9, polled 4,000
people aged 20 years or older, with 2,284, or 57.1%, valid responses
received.

hinoue@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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