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 While corporate capital spending was strong, the Bank of Japan's
quarterly "tankan" survey on Monday also underscored prevailing
doubts among businesses about Abe's strategy to spark durable
economic growth.
"With the election out of the way, Abe must shift his policies from
those simply aimed at boosting sentiment to those that can actually
change the way companies act. Otherwise, the benefits of Abenomics
won't trickle down," said Kyohei Morita, chief Japan economist at
Barclays Capital.
Abe's landslide election win gives him a fresh mandate to pursue his
'Abenomics' policies comprising massive monetary and fiscal
expansion, and structural reforms.
The prime minister's strategy to end 15 years of deflation and drive
sustainable growth has had only modest success so far, driving the
stock market higher and boosting profits of exporters on the back of
a weak yen.
However, the much-anticipated virtuous circle of higher capital
investment, rising wages, domestic demand and robust growth has yet
to fully materialize.
Monday's tankan embodied this slow progress, as companies retained
their solid capital expenditure plans and complained of labor
shortages. But sentiment among big manufacturers worsened slightly
and improved only modestly among service-sector firms despite sharp
rises in equities and the yen's steep falls.
With the BOJ already pumping money aggressively and the country's
dire financial straits leaving it with little room for additional
spending, Abe's challenge is to push through reforms to boost
Japan's growth potential, analysts say.
The economy unexpectedly slipped into a recession in the third
quarter, largely due to the hit to consumption from a sales tax hike
in April. Since then, the signs of recovery have been mixed with
exports rebounding but consumer mood slumping.
GLIMMER OF HOPE
The headline index measuring big manufacturers' sentiment fell one
point from three months ago to plus 12, worse than a median market
forecast of plus 13, the tankan showed.
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Both manufacturers and non-manufacturers expect conditions to worsen
ahead, highlighting the patchy recovery.
While the weak yen benefited exporters, it hurt other firms through
rising import costs.
Policymakers hope that big manufacturers, which saw profits boom
thanks to the weak yen and sliding oil prices, will spend more on
wages and capital expenditure.
The tankan showed big companies plan to increase capital expenditure
by 8.9 percent in the fiscal year ending in March 2015, more than a
median forecast of a 8.0 percent rise.
Such positive signs will give the BOJ some breathing space after
having expanded its massive stimulus program in October.
The BOJ is likely to offer a more upbeat view of the economy and
keep monetary policy steady this week on tentative signs of
recovery, sources have told Reuters.
"Capital expenditure plans are healthy and sentiment at
non-manufacturers is improving, which suggests the economy can
continue to recover gradually," said Hidenobu Tokuda, senior
economist at Mizuho Research Institute.
(Additional reporting by Stanley White; Editing by Shri Navaratnam)
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