— Adds Details, Background In Paragraphs 7, 10-11, 17 Onward
TOKYO (MNI) – Business confidence among large Japanese
manufacturers improved in March for the fourth consecutive quarter, as
exports and production continued to rise on the recovering global
economy, according to the Bank of Japan’s latest quarterly March Tankan
corporate survey released on Thursday.
The Tankan survey headline index — showing current business
sentiment among large manufacturers — improved to -14 in March from -25
in December (revised down from -24 due to a change in sampling), but the
index remained in negative territory for the seventh consecutive
quarter.
The benchmark March figure came in weaker than the consensus call
of -12, with economist forecasts ranging from -8 to -17.
The March level for the headline index was the highest since -3 in
March 2008, but remained well below the +5 seen in June 2008 just before
the global financial crisis began.
The pace of improvement in business sentiment generally
accelerated, thanks to a stronger-than-expected economic recovery in
emerging economies.
The 11-point gain in the current survey was bigger than the 6-point
rise forecast by respondents in the December survey.
Led by a recovery among auto giants, machinery firms and makers of
ceramics, stone and clay, the latest improvement in the large
manufacturing sector was the largest gain since +15 points marked 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.
The headline sentiment index is expected to improve by another 6
points to -8 in the next survey in June, according to respondents’
forecasts in the March survey.
It is the fifth straight quarter that major manufacturers expect
their sentiment to improve three months ahead.
But large carmakers, whose sentiment jumped to -2 in March from -21
in December, foresee their index dropping by 10 points to -12 in June.
It is the first negative outlook provided by the industry since December
2008, when it anticipated 27-point drop in the aftermath of the plunge
in global demand.
The latest Tankan continued to show there is a gap in improvement
between export-oriented manufacturers and other sectors dependent on
domestic demand.
Business confidence among major non-manufacturers also improved for
the fourth straight quarter, though it rose only slightly to -14 from
-21 three months earlier. The index is expected to improve further to
-10 in June.
The March figure for large non-manufacturers was slightly better
than most analysts expected. The median of forecasts by economists was
-17, with estimates ranging from -12 to -20.
Sentiment among smaller manufacturers — led by motor vehicles,
general-purpose machinery, non-ferrous metals and business oriented
machinery — improved for the third quarter in a row.
But both smaller manufacturers and non-manufacturers continue to
expect their sentiment to drop in three months’ time, as small
businesses are not benefitting much from the global economic recovery.
The sentiment index for small- and medium-sized manufacturers
improved to -30 from -41 in December, up for the third straight quarter.
But the index is expected to fall back to -32 in June, the first time in
four quarters that this group has expected a drop three months ahead.
The index for smaller non-manufacturers rose to -31 from -34, up
for the third quarter in a row, but the index is expected to slip to
-37 in June in the face of continued sluggish domestic demand and the
risk of deepening deflation. It is the first time in 16 quarters that
the sector has forecast a drop for the coming three months.
Major manufacturers plan to slash their capital spending by 0.9% on
average in fiscal 2010, which began today (firms were not asked about
their FY2010 capex plans in the December survey).
This follows an estimated record year-on-year drop of 30.0% for the
sector in fiscal 2009 just ended.
All major firms, including non-manufacturers, expect their capital
spending to fall 0.4% from a year earlier in the current fiscal year,
following a record 14.2% drop estimated for fiscal 2009.
This is the best outlook presented by all major firms at the start
of a new fiscal year in three years, since the group forecast a 2.9%
rise in capex in their initial plans in March 2007.
Small- and medium-sized firms forecast their capex will fall 19.4%
from a year earlier, better than an estimated 23.5% drop for the last
fiscal year.
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 2009 are
still estimated to have fallen for the second year in a row but that
they will post the first gain in three years in fiscal 2010.
In addition, all sectors expect their current profits to turn
positive in the new 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 21.1% rise in fiscal 2010
profits, improving sharply from the 15.9% fall estimated for fiscal 2009
just ended.
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 22.7% in fiscal 2010, up from a 11.9% drop estimated for
fiscal 2009.
In fiscal 2010 current profits by all companies are expected to
rise by 21.5% from a year earlier, compared with a drop of 14.5%
projected for fiscal 2009.
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 fourth straight quarter
while that for smaller makers improved for the third 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 25 from 30 in
December. It was the fourth straight quarter of easing in overcapacity
but was still the eighth consecutive quarter of reported excess
capacity.
The production capacity index for small manufacturers also fell 5
points to 25, the third consecutive quarter of an improvement, but it
was the eighth 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 5 points to 17 for large
manufacturers. It was the fourth consecutive quarter of easing in excess
workforce but the index still showed excess for the sixth straight
quarter.
The index showing excess employees among major non-manufacturers
was flat at 9. The employment indexes for smaller firms also improved
for the third straight quarter.
While there has emerged some improvement in wages, overall job
creation is still slow.
The March Tankan showed that the number of employees at major firms
at the end of December 2009 rose 1.7% from a year earlier, up from a
0.5% rise at end-September while those employed by small businesses fell
1.8% in December compared to a 2.5% drop in September.
The payroll number for all industries excluding financial firms
fell 0.5% on the year at end-December, a smaller decline than the fall
of 1.6% three months earlier.
On corporate financing, the Tankan showed both financial positions
among borrowers and the lending attitude among financial institutions
improved for the fourth 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 Feb. 23 to March 31.
tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **
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