Corporate confidence in Japan improved unexpectedly in the last three months as exports recovered and fears over the Iraq war and SARS eased, a key survey by the Bank of Japan showed today.
The central bank said the index of sentiment amongst large manufacturers in its latest Tankan survey jumped to -5 from -10 in the March report. The outcome far outpaced market expectations of no change, boosting the yen against the dollar and pushing stocks higher.
At the same time, the closely watched index remained in negative territory for the 10th consecutive quarter. A minus figure means a majority of firms believe conditions are unfavourable.
The index of large non-manufacturer confidence in the April-June survey improved slightly to -13 from -14, according to the Japanese central bank.
Analaysts said the unexpected rise was due to a combination of the improvement in the overseas markets, the stock market going up, the bounce-back effect from the Iraq war and an improvement due to companies' restructuring efforts.
Economists also felt that fading concerns over the outbreak of Severe Acute Respiratory Syndrome (SARS), which sent shockwaves through boardrooms nationwide, also supported the indices.
Overall business sentiment improved slightly across the board, with the index of medium-sized manufacturers inching up to -16 in June from -18 previously and that of small manufacturers rising to -28 from -29.
Adding to the renewed sense of confidence, recurring profits among large manufacturers for the year to March just ended were revised to a 38.2% rise from the previous year compared with the 32% increase reported in the March survey. For the current year to March 2004, firms forecast profits will rise 11.6% even as they expect sales to dip 1%.
Increased cost-cutting efforts by companies keen to boost efficiency, such as consumer electronics giant Sony, will more than compensate for slower sales, resulting in the improved profits, analysts said.
As a detailed study of Japanese businesses and their plans for the months ahead, the quarterly Tankan survey is the central bank's key source of data for planning. The indices measure the difference between firms saying economic conditions are favourable and those saying they are unfavourable.
