Japanese Businesses Are Less Pessimistic: Tankan Survey

Japanese business confidence pulled back from a record low hit three months ago, the Bank of Japan's tankan survey showed, in the first rise in two and a half years as reviving global trade boosts Japan's big exporters.

Katsumi Kasahara / AP Business men look at an electric market board in Tokyo, Friday, Oct. 10, 2008. (AP Photo/Katsumi Kasahara)

Companies said they expected business conditions to further improve in the next three months, although from very low levels as damage from the global financial crisis persists.

The tankan survey also showed companies are less worried about their funding conditions than in March, when risk-shy investors shunned corporate loans except for those with high credit ratings amid the global financial crisis.

The Bank of Japan has said it was watching closely the tankan survey to decide whether to extend corporate funding measures such as commercial paper and bond buying beyond their planned expiry in September.

The closely watched tankan survey's main sentiment index for big manufacturers improved to minus 48 in June from a record low of minus 58 in the previous quarterly survey in March. 

It was a smaller improvement than a median market forecast of minus 43 and, as a negative number, pessimists still outnumbered optimists.

"The overall impression is that Japanese firms are facing a more severe situation than market players think," said Susumu Kato, chief economist at Calyon Capital Markets Japan. "The background behind this is a delay in inventory adjustments in materials sectors including steel and the general machinery sector."

He said this was in line with the central bank's scenario of a slow economic recovery and it would likely extend its funding measures beyond September.

"That is the most important task for the central bank right now," he said.

The outlook for September stood at minus 30, showing firms expected conditions to improve over the next three months.

Big non-manufacturers were also slightly less pessimistic about business conditions and expected further improvements in September, the survey showed on Wednesday.

Japan's exports and industrial production have rebounded after plunging late last year, as companies worked off inventories and with a global recession showing signs of easing.

Many economists believe the worst for the recession has passed for Japan too, with April-June GDP expected to show a 0.4 percent growth after four straight quarters of contraction.

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But any recovery will likely be slow and fragile as companies, hit by slumping profits, hold off on capital spending and cut staff and wages, passing the pain to households.

Analysts also warn that strength in exports and output will peter out later this year unless global markets, particularly the United States, make a sustained recovery.

The tankan showed Japan's big firms plan to cut capital spending, a key driver of the economy, by 9.4 percent in the year to March 2010. That is a bigger decline than the market's median forecast for a 6.9 percent fall.

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