— Deleting 11th Paragraph, Background Left In Story Inadvertently

TOKYO (MNI) – Business confidence among large Japanese
manufacturers improved in June for the fifth consecutive quarter to its
highest level in two years, as Japan’s exports and production continued
to rise on the recovering global economy, according to the Bank of
Japan’s latest quarterly June Tankan corporate survey released on
Thursday.

The Tankan survey headline index — showing current business
sentiment among large manufacturers — improved to +1 in June from -14
in March. The June reading was the highest since June 2008 (+5) —
before the global financial crisis — and also the first positive
reading since then.

The benchmark June figure came in better than the consensus call of
-2, with economist forecasts ranging from +2 to -5.

The pace of improvement in business sentiment generally
accelerated, thanks to the stronger-than-expected economic recovery in
emerging economies.

The 15-point gain in the current survey was bigger than the 6-point
rise forecast by respondents in the March survey.

Led by a recovery in the textile, general-purpose machinery,
production machinery and motor vehicle sectors, the latest improvement
in the large manufacturing sector matched the 15-point gains posted in
September 2009.

Going forward, the pace of recovery is expected to be slow amid
concerns about persistent deflation and uncertainty over a recovery in
private demand in Japan.

The headline sentiment index is expected to improve by another 2
points to +3 in the next survey in September, according to respondents’
forecasts in the June survey.

It is the sixth straight quarter that major manufacturers expect
their sentiment to improve three months ahead.

But large carmakers, whose sentiment jumped to +18 in June from -2
in March, foresee their index dropping by 15 points to +3 in September.

The latest Tankan showed that the favorable effects from the
recovering overseas economies are gradually filtering through to major
non-manufacturers and smaller firms.

But the Tankan also continued to show there is a gap in improvement
between export-oriented manufacturers and other sectors dependent on
domestic demand.

Business confidence among large non-manufacturers also improved for
the fifth straight quarter, though to a less extent than among
manufacturers, rising to -5 from -14 three months earlier. The index is
expected to improve further to -4 in September.

The June figure for large non-manufacturers was also slightly
better than most analysts expected. The median of forecasts by
economists was -7, with estimates ranging from -4 to -9.

The sentiment index for small manufacturers improved to -18 from
-30 in March, up for the fourth straight quarter.

The index is expected to deteriorate to -19 in September.

Sentiment among smaller manufacturers was led by communications,
wholesaling and services for individuals.

The index for smaller non-manufacturers rose to -26 from -31, up
for the fourth quarter in a row, but the index is expected to slip to
-29 in September in the face of continued sluggish domestic demand and
the risk of deepening deflation.

Major manufacturers plan to increase their capital spending by 3.8%
on average in fiscal 2010 started on April 1, revised up from a 0.9%
fall predicted in the previous Tankan.

This follows an estimated record year-on-year drop of 32.2% for the
sector in fiscal 2009 just ended.

All major firms, including non-manufacturers, expect their capital
spending to rise 4.4% from a year earlier in the current fiscal year,
revised up from a 0.4% fall at the previous survey.

Small- and medium-sized firms forecast their capex will fall 15.5%
from a year earlier, improving from a 19.4% fall in the previous Tankan.

Smaller firms tend to gradually revise up their investment plans as
the fiscal year progresses.

The Tankan showed that sales in all sectors in fiscal 2010 are
estimated to rise 3.3% from a year earlier.

In addition, all sectors expect their current profits to turn
positive in this fiscal year, the first rise in three years for major
firms and the first increase in four years for small businesses.

Large companies are now forecasting a 21.6% rise in fiscal 2010
profits, improving from the 21.1% rise estimated in the March Tankan.

The improvement will largely result from a recovery in overseas
demand for Japanese products.

Meanwhile, small- and medium-sized companies expect their current
profits to rise 17.2% in fiscal 2010, down from a 21.5% rise seen in the
previous survey.

In fiscal 2010 current profits by all companies are expected to
rise by 19.7% from a year earlier, revised down from a 21.5% rise
forecast in the March survey.

The Tankan results showed that Japanese firms were still laden with
excess production capacity and employees, suggesting that corporate
executives will remain cautious about resuming investment in plant and
equipment, hiring new graduates and raising salaries.

But the survey also showed that excess production and sales
capacity among major manufacturers eased for the fifth straight quarter
while that for smaller makers eased for the fourth straight quarter.

Among major manufacturers, the diffusion index for production
capacity — the percentage of firms reporting excess capital minus the
percentage of firms reporting the opposite — fell to 17 from 25 in
March. It was the fifth straight quarter of easing in overcapacity but
was still the ninth consecutive quarter of reported excess capacity.

The production capacity index for small manufacturers also fell 5
points to 20, the fourth consecutive quarter of an improvement, but it
was the ninth straight quarter the index showed overcapacity.

Both indexes showed the best level since December 2008.

Meanwhile, the index for employment conditions — the percentage of
firms saying they have excess labor minus the percentage of firms saying
that labor is in short supply — fell by 7 points to 10 for large
manufacturers. It was the fifth consecutive quarter of easing in excess
workforce but the index still showed excess for the seventh straight
quarter.

The index showing excess employees among major non-manufacturers
was at 7. The employment indexes for smaller manufacturing improved for
the fourth straight quarter.

While there has emerged some improvement in wages, overall job
creation is still slow.

The June Tankan showed that the number of employees at major firms
at the end of March rose 1.1% from a year earlier, down from a 1.7% rise
at end-December while those employed by small businesses fell 1.2% in
March compared to a 1.8% drop in December.

The payroll number for all industries excluding financial firms
fell 0.1% on the year at end-March, a smaller decline than the fall of
0.5% three months earlier.

On corporate financing, the Tankan showed both financial positions
among borrowers and the lending attitude among financial institutions
improved for the fifth straight quarter.

The Tankan diffusion index represents the difference between the
number of companies reporting favorable business conditions and those
reporting unfavorable ones.

The Tankan survey was conducted from May 26 to June 30.

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

[TOPICS: M$J$$$,M$A$$$,MMJBJ$,MAJDS$,MT$$$$,M$$CR$]