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 The readings in Thursday's Reuters Tankan poll - which strongly
correlates with the Bank of Japan's key tankan quarterly survey -
reinforce policymakers' confidence that the world's third-largest
economy can weather the pain of a recent national sales tax
increase.
Still, the BOJ may face renewed pressure for additional stimulus if
the weakness in exports persist, threatening to derail a recovery
which kicked in last year following near two decades of economic
stagnation.
In a speech on Thursday that underscored some of the uncertainties
ahead, BOJ board member Yoshihisa Morimoto warned of risks to the
export outlook as demand in emerging Asian markets fail to gather
momentum.
He said there were "both downside and upside risks" to the BOJ's
projection that exports will rebound, depending on how overseas
economies perform.
"We must continue to scrutinise the outlook for emerging economies,
as well as developments in Europe's debt problem and the U.S.
economy," Morimoto told business leaders in Akita, northeastern
Japan.
His comments follow data on Wednesday which showed Japan's exports
fell for the first time in more than a year, hit by a drop in
shipments to Asia and the United States.
Some market players worry that the hit from the April 1 tax increase
to 8 percent from 5 percent and weak shipments could prove bigger
than expected, squandering the progress made over the last year
thanks to Tokyo's massive fiscal and monetary stimulus.
Still, Morimoto stuck to the central bank's upbeat view on the
economy, saying it is likely to continue recovering moderately with
the pain from the tax hike on household spending seen receding
around summer.
The Reuters Tankan backs Morimoto's confidence, with manufacturers'
morale seen improving in September, while the service-sector mood is
expected to worsen but hover at relatively high levels.
The monthly poll of 400 major manufacturers and service-sector
firms, of which 260 replied during the June 2-16 period, suggests
that the BOJ's tankan due July 1 may show the impact of the April
tax hike is limited.
That would be encouraging to the central bank, which has indicated
it is willing to look through short term dips in growth without the
need for additional stimulus.
"Firm readings reflect steady earnings at listed firms.
Non-manufacturers seem to be more affected by the tax hike, but the
pullback in demand has bottomed out," said Yoshimasa Maruyama, chief
economist, Itochu Economic Research Institute.
"We need to scrutinise more upcoming data to determine the impact of
the tax hike including household incomes. But the BOJ tankan is
likely to show only slight decline in business sentiment given
readings in the Reuters poll."
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EXTERNAL HEADWINDS Morimoto, a former utility executive and now
among the BOJ's nine board members, cautioned that growth in
emerging nations will lack momentum until they start to feel the
benefits from a pickup in demand in advanced economies.
Some companies in the Reuters poll also complained about lack of
strength in external demand, particularly China and other emerging
Asia.
"The expansionary trend is continuing for our business as a decline
in demand after the tax hike has been smaller than expected.
However, demand from Asia and China has been slow," a transport
equipment firm said in the Reuters Tankan.
The central bank left monetary policy steady last week, signalling
confidence that the economy is on track to meet its 2 inflation
target next year without additional stimulus. Growth rebounded in
the first quarter as consumers loaded up on goods ahead of the sales
tax hike, but is seen slumping this quarter as the consumption-spike
winds back.
Morimoto said a positive cycle was kicking off as rising profits
were encouraging firms to boost jobs, wages and capital expenditure.
The bullish comments were reflected in the Reuters Tankan. Compared
with three months ago, the survey's sentiment index for
manufacturers inched up and that for service-sector firms fell
slightly, pointing to relatively steady readings in the BOJ's
quarterly tankan.
In the Reuters Tankan, the index of sentiment among manufacturers
stood at plus 19, unchanged from May, and up 1 point from three
months ago. At plus 29, the service-sector gauge was up 8 points
from May but down 2 points from March.
Indexes are calculated by subtracting the percentage of pessimistic
responses from optimistic ones. A positive reading means optimists
outweigh pessimists.
The index for manufacturers is seen edging up to plus 21 in
September, while the service-sector gauge is expected to fall to
plus 25, with optimists still far outnumbering pessimists.
(Additional reporting by Izumi Nakagawa; Editing by Kim Coghill &
Shri Navaratnam)
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