Japan's business confidence grows for fourth quarter

Japanese business confidence has improved for a fourth straight quarter as the world's number two economy slowly recovers from its worst slump in decades, the Bank of Japan said yesterday.

Sentiment among major manufacturers rose to its highest level since September 2008, with a reading of minus 14 in March from a revised minus 25 in December, according to the bank's Tankan survey of more than 11,000 firms.

The closely watched index, which measures the percentage of firms that think business conditions are good minus those that believe they are bad, hit a record low of minus 58 in March last year.

Analysts pointed to the export-led nature of the recovery as being key to the improving confidence level.

"Sentiment among major manufacturers was strong because it's an export-led recovery, supported by the US recovery and resilient growth in Asia," said Norio Miyagawa, economist at Shinko Research Institute.

Sentiment among big non-manufacturers also improved to minus 14 in the latest survey, from minus 21 in December.

However, the negative reading signals that "sentiment among medium- and small-sized companies, especially among non-manufacturers, is still weak", Mr Miyagawa added.

While most firms are still cautious about the economy, the survey showed companies expect a bounce in profits and plan to ease spending cuts on factories and equipment, boosting Japan's prospects of sustainable growth.

Large manufacturers plan to cut capital investment by 0.9 per cent in the fiscal year that started yesterday, the BoJ reported, compared to a revised 30.0 per cent slash the previous year. Major manufacturers meanwhile forecast a 49.3 per cent jump in pre-tax earnings for the new year, after a revised 21.5 per cent plunge last year.

The Tankan survey is a key indicator guiding the BoJ's formulation of monetary policy. The bank has held its benchmark interest rate at 0.1 per cent since December 2008, the depths of the global financial crisis. But the corporate world's upbeat assessment comes amid signs Japan's recovery from a year-long recession remains fragile, owing to enduring deflation and low domestic demand.

The economy grew at a slower rate than previously thought in the fourth quarter of 2009, at just 0.9 per cent, a government revision in March said.

And factory output fell for the first time in 12 months in February while unemployment remained at 4.9 per cent.

The BoJ last month doubled the amount of cash it will make available to banks, boosting its short-term loan facility to 20 trillion yen in a bid to increase spending.

Despite the brighter sentiment in the Tankan, government pressure on the central bank to do more to bolster the economy would likely remain, analysts said.

"Given that deflation is still there, the government's pressure on the Bank of Japan to take additional monetary easing could continue," said Hiroshi Watanabe, economist at Daiwa Securities.

Japan's big exporters such as Sony and Toyota were a major driver of growth in Asia's largest economy before the global crisis. Recent months saw many companies cutting back investment to recover from heavy losses inflicted by slumping sales and a soaring yen, which has dented earnings from crucial exports.

While fears of a possible double-dip recession have eased, the pace of recovery is slowing as the effects of Tokyo's stimulus launched last year expire, said Shinko's Mr Miyagawa.

"I'm not sure when the recovery will spread to non-manufacturers," he said. "Domestic demand is still fragile."

Japanese shares were lifted by the survey results. Tokyo's Nikkei index closed up 1.39 per cent at 11,244.40. The broader Topix of all first section shares added 0.66 per cent to 985.26.