TOKYO (Reuters) — Japanese business
confidence improved over the three months to December to its highest
level in six years, a central bank survey showed, suggesting Prime
Minister Shinzo Abe's "Abenomics" stimulus policies are gaining broader
traction across the economy.
The Bank of Japan's quarterly "tankan" survey showed sentiment
brightened not just for big firms but also for smaller companies,
which had been slower to reap the benefits of a recovering economy.
Small manufacturers' sentiment hit a six-year high and the small
non-manufacturers' index turned positive, which means optimists
outnumbered pessimists, for the first time since 1992.
The tankan reinforces the BOJ's view that the economy is recovering
moderately under and likely allowing it to hold off on expanding
stimulus in coming months, analysts said.
"The economy is moving in line with the BOJ's forecasts, which means
the central bank will keep monetary policy steady at least next week
and in January," said Junko Nishioka, chief Japan economist at RBS
Securities.
The headline index for big manufacturers' sentiment improved 4
points from the previous quarter to plus 16, the tankan showed on
Monday, slightly above a median market forecast of plus 15.
It was the fourth straight quarter of improvement and the highest
level since December 2007, as companies benefited from robust
domestic demand and a weak yen that gives their goods a competitive
advantage overseas.
Service-sector mood also improved as consumers rushed to beat a
sales tax hike next April. The big non-manufacturers' index was up 6
points to plus 20, better than a median forecast of plus 16 and the
highest level since December 2007.
"Figures in the services sector were especially bright, and the
positive mood is a sign that optimism is finally spreading into
domestic demand-sensitive sectors from exporters," said Hideo
Kumano, chief economist at Dai-ichi Life Research Institute in
Tokyo.
SO FAR, SO GOOD
Japan's economy outpaced its G7 counterparts in the first half of
this year as Abe's stimulus policies boosted business and household
sentiment. Growth slowed in July-September on soft exports, but
analysts expect it to accelerate again in the run-up to the sales
tax hike.
Public works spending is also likely to offset the continued
weakness in exports, thanks to a fiscal stimulus package aimed at
softening the blow of higher sales tax.
The BOJ has said the economy can handle the pain from the sales tax
hike and still meet the bank's goal of achieving 2 percent inflation
in roughly two years, due in part to the effect of its aggressive
monetary stimulus launched in April.
The central bank is thus widely expected to keep monetary settings
unchanged at its next rate review on December 19-20.
The tankan gave the BOJ few reasons to ponder imminent easing.
Companies see less slack in jobs and expenditure, and are enjoying
rising profits due in part to the weak yen.
Big manufacturers revised up their dollar/yen projections for the
current fiscal year ending in March to 96.78 yen from 94.45 yen
three months ago. That is still a conservative forecast considering
the dollar is now moving around 103 yen.
Some analysts now discount heightening market speculation that the
central bank will ease again in April, when household spending will
take a hit from the sales tax hike.
"I don't think the BOJ will rush in easing, given the economy is on
track and how its forecasts already take into account the tax hike
impact," said Nishioka of RBS.
"Of course, the BOJ may act if external factors, such as a yen
spike, hit business sentiment. But I don't think the chance of an
April action is high."
A Reuters poll conducted earlier this month found that almost
two-thirds of Japanese firms expect the BOJ to increase its stimulus
in the first six months of 2014.
There are factors that cloud the outlook, such as weakness in
emerging economies that have capped export growth.
Big manufacturers and non-manufacturers both expect business
conditions to worsen slightly in the three months to March, the
tankan showed, highlighting their uncertainty on whether the economy
will sustain its momentum.
Big firms are seen raising capital spending by 4.6 percent in the
current business year to next March, down from 5.1 percent seen in
the previous tankan. That was less than a median market forecast for
a 5.5 percent increase, underscoring the difficulty the BOJ faces in
trying to nudge firms into boosting spending.
(Additional reporting by Stanley White;
editing by Eric Meijer)
