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Business confidence among big Japanese manufacturers improved slightly in the three months to September, according to the Tankan survey of business sentiment, though the rise fell slightly short of expectations.
The Nikkei index fell by 0.4 per cent to 13,525, while the broader Topix index dropped by 0.1 per cent, to 1,411, suggesting markets were mildly disappointed by the relatively flat results. "The headline figures were slightly weaker than many observers expected," said Kiichi Murashima, chief economist at Nikko Citigroup in Tokyo.
But he agreed with several other economists that there was good news buried in the detail. There had, for example, been a strong recovery in sentiment in the crucial electrical machinery sector, where inventories have been falling steadily, as well as growing confidence among retailers, restaurants and leasing companies.
Confidence among raw materials makers and steel companies fell, suggesting the impact of higher energy prices and reflecting the gradual shift in growth from the export to the domestic sector. The all-industry assessment of the labour market fell to minus 2.0, from zero last time, indicating a labour shortage. Economists have pointed to a tightening labour market as the single biggest improvement in recent months and Mr Murashima said: "This is the reason for decent growth in household consumption in the first half."
The prospect of having to pay higher wages could be behind companies' cautious statements about future profitability, which might also be affected by conservative assumptions about the exchange rate.
Companies are basing their forecasts on a rate of Y105 to the dollar, whereas in reality the yen has depreciated substantially, touching Y114 in recent days. That, said some economists, indicates they may upgrade their view in the next Tankan survey in December.
The index for large manufacturers rose by 1.0 point to 19, lower than the 20 that had been the consensus forecast. Companies are projecting it will slip back to 18 in the December survey. The confidence index is calculated by subtracting the number of pessimists from optimists.
The large manufacturers' index, which rose for the second straight survey, is still not back up to last December's levels when it peaked in 2004. The index for large non-manufacturers was unchanged at 15.
Speaking before the survey was released, Kazuo Momma, head of economic assessment and projection at the Bank of Japan, said the trend of Japan's economy was improving despite fairly patchy data. Growth was being pushed by domestic demand -- corporate investment and household spending -- making the recovery less vulnerable to mild external shocks, he said.
"The strengths of domestic demand is becoming more and more consistent with the sustainability of economic growth," he said. "We can't be sure that economic recovery will be sustained but the likelihood of sustainability is getting larger and larger, coming from an apparently more durable situation of domestic demand."
The business index for mid-sized and small companies was also up 1.0 to 3.0 points, showing that the effects of recovery are slowly rippling beyond the big exporters. Small non-manufacturers also rose 1.0 but were still well in negative territory at minus-11.
Big manufacturers said they would spend 16.2 per cent more on plant and equipment than last year. Overall estimates for capital expenditure were revised up slightly.
Under syndication arrangement
with FE
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