— Adds Details, Background From 10th Paragraph
— Sep Major Manufacturer +8 Reading Highest Since Mar 2003
— Major Manufacturers Project Sentiment Index to Fall to -1 in Dec
— All-Firm FY10 Capex Revised Down To -1.0% from +0.5% in June
TOKYO (MNI) – Business confidence among large Japanese
manufacturers improved in September for the sixth consecutive quarter to
its highest level in seven and a half years, as Japan’s exports and
production continued to rise on the recovering global economy, according
to the Bank of Japan’s latest quarterly September Tankan corporate
survey released on Wednesday.
However, the index is seen dropping to -1 in December based on
survey responses on the outlook. It is the first time in seven quarters
that major manufacturers expect the sentiment to worsen three months
ahead.
The Tankan survey headline index — showing current business
sentiment among large manufacturers — improved to +8 in September from
+1 in June.
The September reading was the highest since +11 in March 2003 and
marked the second consecutive positive reading.
The benchmark September figure came in better than the consensus
call of +6, with economist forecasts ranging from +3 to +8.
The improvement in business sentiment slowed (+7 points in
September vs. +15 points in June) as the yen surged to a 15-year high
due to concerns over the outlook for the U.S. economy and Japanese stock
prices plunged on worries about the nation’s export-reliant economic
recovery.
The Tankan results will likely undermine the BOJ’s baseline view
that the nation’s economy is expected to return to a sustainable
recovery path and prompt the BOJ board to strongly consider
taking additional credit easing steps at its meeting on Monday and
Tuesday next week.
The assumed dollar-yen exchange rate expected by major
manufacturers is Y89.66 in the September survey, compared with an
average Y90.18 in the previous Tankan.
At 0013, dollar-yen was trading at Y83.96, little changed from its
level prior to the Tankan release.
Sentiment in the export sector, including motor vehicles,
electrical machinery and business oriented machinery, improved in
September from the three months ago. However, those industries expect
their sentiment to worsen in the next three months.
Large carmakers, whose sentiment jumped to +32 in September (the
highest since +33 in March 2008) from +18 in June, foresee their index
plunging by what would be a record 38 points to -6 in December.
Sentiment among large electric machinery makers rose to +14 in the
latest survey from +6 in the previous one but they see it slumping to
+5 in three months time.
The latest Tankan showed that the favorable effects from the
recoveries in overseas economies continued to gradually filter through
to major non-manufacturers and smaller firms.
The Tankan also continued to show there is a large gap in the
improvement between export-oriented manufacturers and other sectors
dependent on domestic demand.
Business confidence among large non-manufacturers also improved for
the sixth straight quarter, though to a lesser extent than among
manufacturers, rising to +2 from -5 three months earlier. The latest
reading was the highest since +10 marked in June 2008.
The result was also slightly better than most analysts expected.
The median of forecasts by economists was -2, with estimates ranging
from -1 to -3.
But the index is expected to slip to -2 in December.
The sentiment index for small manufacturers improved to -14, the
highest level since -10 in June 2008, from -18 in June, up for the fifth
straight quarter.
But the index is expected to deteriorate to -22 in December.
The latest improvement in sentiment among smaller manufacturers was
led by firms in the lumber and wood products, processed metals and motor
vehicle sectors.
The index for smaller non-manufacturers rose to -21 from -26, up
for the fifth quarter in a row, but the index is expected to slip to -29
in December in the face of continued sluggish domestic demand and the
risk of deepening deflation.
Major manufacturers plan to increase their capital spending by 4.0%
on average in fiscal 2010 started on April 1, revised up from a 3.8%
rise predicted in the previous Tankan.
That’s the best figure since an actual 4.6% rise in business
investment in equipment and land in fiscal 2007 at the end of a
five-year high growth period for the world economy.
This follows an estimated record year-on-year drop of 31.4% for the
sector in fiscal 2009 that ended in March.
Tankan charts show that capex plans for fiscal 2010 among large
manufacturers are recovering their usual pattern of being revised up in
the middle of a fiscal year (June and September) and drift down toward
the end of it, departing from an unusual one-sided decline seen in
fiscal 2009.
However, capex plans for all major firms, including
non-manufacturers, were revised down to a rise of 2.4% for the current
fiscal year from the 4.4% rise projected in the previous survey.
Small- and medium-sized firms forecast their capex will fall 15.0%
from a year earlier, improving from a 15.5% decline in the previous
Tankan.
Tankan charts show that small businesses are also following their
usual pattern of revising up their capex plans gradually as the fiscal
year progresses.
For fiscal 2010, the September Tankan showed that nearly all
sectors projected first year-on-year gains in sales in three years while
smaller non-manufacturers saw a drop for the third year in a row.
Sales in for all sectors in the current fiscal year are estimated
to rise 4.1% from a year earlier.
In addition, all sectors expect their current profits to turn
positive in this fiscal year.
Large companies are now forecasting a 28.3% rise in fiscal 2010
profits, improving from the 21.6% rise estimated in the June Tankan and
compared with a 6.3% drop in fiscal 2009.
The improvement largely resulted from a recovery in overseas demand
for Japanese products.
Meanwhile, small- and medium-sized companies expect their current
profits to rise 15.0% in fiscal 2010, down from a 17.2% rise seen in the
previous survey. In fiscal 2009, their profits fell 0.4%.
In fiscal 2010 current profits by all companies are expected to
rise by 24.6% from a year earlier, revised up from a 19.7% rise forecast
in the June survey and improving sharply from a 4.3% drop in the
previous year.
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 plants 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 sixth straight quarter
while that for smaller makers eased for the fifth 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 12 from 17 in
June.
It was the sixth straight quarter of easing in overcapacity but was
still the 10th consecutive quarter of reported excess capacity.
The production capacity index for small manufacturers fell to 15
from 20, showing an improvement for the fifth straight quarter while
still pointing to the 10th straight quarter of overcapacity.
Meanwhile, the indexes for employment conditions — the percentage
of firms saying they have excess labor minus the percentage of firms
saying that labor is in short supply — improved in all sectors, with
the index for large manufacturers falling slightly to 9 from 10.
It was the sixth consecutive quarter of easing in excess workforce
but the index still showed excess for the eighth straight quarter.
The index showing excess employees among major non-manufacturers
fell to 5 from 7 in June.
The employment indexes for smaller manufacturing improved for the
fifth straight quarter, to 11 from 17.
While some improvement in wages has emerged, overall job creation
is still slow.
The September Tankan showed that the number of employees at major
firms at the end of June fell 1.0% from a year earlier, reversing from a
1.1% rise at end-March, while those employed by small businesses fell
1.1% in June, a slight improvement from the 1.2% drop in March.
The total number of payroll employees for all industries excluding
financial firms fell 0.7% on the year at end-June, worsening from -0.1%
three months earlier.
On corporate financing, the Tankan showed both financial positions
among borrowers and the lending attitude among financial institutions
continued to improve.
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 Aug. 23 to Sept. 28. By Sept.
7, about 70% to 80% of the polled had returned their responses.
tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **
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