Japan Corporate Sentiment Rises for 1st Time in Six Quarters

(Bloomberg) -- Confidence among Japan’s large manufacturers improved for the first time since June last year as the fall in the yen improved prospects for company earnings.

Key Points

• Sentiment among large manufacturers rose to 10 from 6 three months ago (est. 10), according to the Tankan survey released by the Bank of Japan Wednesday.
• The outlook among the manufacturers increased to 8 from 6 (est. 9).
• Sentiment among large non-manufacturers was unchanged at 18 (est 19).
• Large companies across all industries plan to raise business investment by 5.5 percent for the year ending in March (est. 6.1%).

Big Picture

Improving sentiment among big Japanese manufacturers strengthens the view that the Bank of Japan will be in no rush to add stimulus. The yen weakened against the dollar last month by the most since 1995. A moderate recovery is underway, with the economy growing for the first nine months of the year. However, weak wage gains have capped inflationary pressures.

Economist Takeaways

• "The improvement in confidence reflect a recovery in overseas demand, which bodes well for Japan’s economy. Demand in Asia, including China, is rebounding," said Kohei Okazaki, an economist at Nomura Securities Co. in Tokyo.
• "The recent weakening yen may be reflected in companies’ forecast in the next survey and they may upgrade their capital spending plans next time," Okazaki said.
• There is "plenty of room for upside surprises" as the forecast for the currency didn’t reflect the recent weaker yen, said Marcel Thieliant at Capital Economics in Hong Kong.

Details

• Large manufacturers expect the yen to be at 104.90 per dollar for the year ending in March, stronger than the 107.92 forecast three months ago. The currency was at 115.08 at 9:26 a.m. in Tokyo, having lost almost 11 percent in the past three months.

• The BOJ surveyed 10,791 companies from Nov. 14 to Dec. 13.