Japan business mood turns positive: government survey

[September 11, 2014] By Tetsushi Kajimoto 

TOKYO (Reuters) - Confidence at big Japanese manufacturers turned positive in July-September and they expect business conditions to improve further in the following quarter, a government survey showed, suggesting a gradual economic recovery from the slump after April's sales tax hike.

The survey also showed that companies are growing more positive on business investment, boding well for the government's goal of fostering a sustainable growth cycle led by pick up in business activity, higher wages and stronger consumer spending.

The business survey index (BSI) of sentiment at large manufacturers stood at plus 12.7 in July-September, improving from minus 13.9 in the prior three months.

The big manufacturers' sentiment index is seen improving to plus 15.1 in October-December, it showed.

The joint survey by the Ministry of Finance and the Cabinet Office suggests that the central bank's key tankan survey out on Oct.1 is likely to show a steady improvement in business sentiment in the three months to September.

"It's true business sentiment soured temporarily after the April sales tax hike. But that hasn't dampened companies' spending appetite too much," said Junko Nishioka, chief Japan economist at RBS Securities.

"Overall, conditions surrounding corporate activity doesn't look too bad."

Weak readings in the BOJ's tankan could heighten pressure on the Bank of Japan to deliver fresh stimulus to sustain growth, although the bank remains bullish on the economy and it is in no mood now to loosen hyper-easy monetary policy further.

The April's sales tax hike to 8 percent from 5 percent triggered the deepest slump in the second quarter since the 2009 global financial crisis, raising questions about whether the government will proceed with a second-stage tax rise planned for next year.

The strength of an expected rebound in the current quarter will be crucial to Prime Minister Shinzo Abe's decision, expected by year-end, on whether to go ahead with the tax rise to 10 percent in October 2015.

The BSI measures the percentage of firms that expect the business environment to improve from the previous quarter minus the percentage that expect it to worsen. A positive reading means optimists outnumber pessimists.

The quarterly survey showed the sentiment among big non-manufacturers, including retailers hit hard by the tax hike, improving to plus 10.2 from minus 15.0 in April-June, bringing the overall mood among big businesses to plus 11.1.

The service-sector mood is expected to worsen to plus 7.2 in October-December, and overall big business sentiment is seen worsening to plus 9.9, it showed.

Manufacturers plan to raise capital expenditure by 13.3 percent in the current fiscal year to next March, more than a 10.8 percent increase seen in the previous survey.

Non-manufacturers plan to raise their business investment by 2.0 percent this fiscal year, compared with a 1.5 percent rise seen in the prior survey.

The last BOJ tankan showed on July 1 that big manufacturers' mood worsened in the three months to June but it was seen improving in the current quarter.

The central bank stuck with its massive asset buying stimulus program last week and maintained its view the economy would continue its steady recovery toward its 2 percent inflation target, signaling it sees no immediate need for further monetary stimulus.

However, many private economists remain skeptical that it can achieve that price goal in the next fiscal year.

(Additional reporting by Leika Kihara; Editing by Shri Navaratnam & Kim Coghill)

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