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Japan's Business Confidence Slips From Two-Year High (Update2)
By Lily Nonomiya
April 2 (Bloomberg) -- Confidence among Japan's largest manufacturers fell from the highest in two years amid concern the U.S. economy may slow, curbing export demand.
The Tankan, Japan's most closely watched gauge of business sentiment, showed manufacturer confidence fell to 23 points in March from 25 in December, the Bank of Japan said in Tokyo today. The median forecast of 30 economists was for 24 points. A positive number means optimists outnumber pessimists.
Japan's shipments to the U.S., the nation's biggest market, may slow in coming months as the economy there falters under a slump in housing and slowing consumer spending. Sentiment among Japan's non-manufacturers was unchanged.
``The quarter was severe for manufacturers, who were forced to cut back production and had to deal with the shock of the global stock rout,'' said Hideo Kumano, a senior economist at Dai-Ichi Life Research Institute in Tokyo, and a former BOJ official. ``Non-manufacturers also had to deal with sluggish wage conditions which weighed down on consumer spending.''
A global stock drop that wiped out $3.3 trillion in market value caused the yen to surge to a three-month high as investors reduced holdings of assets funded by borrowing the currency. A higher yen hurts exporters by eroding the value of their sales.
Sentiment among large non-manufacturers stayed at 22 points in March. Economists expected the number to rise to 23 points.
The yen traded at 117.94 per dollar at 9:11 a.m. in Tokyo from 117.74 before the report. The Nikkei 225 Stock Average climbed 0.7 percent. The yield on the benchmark 10-year bond added 1.5 basis points to 1.665 percent.
Large manufacturers said they expected the yen to trade at an average 114.32 in the year ending March 31.
Spending Plans
Large manufacturers plan to increase spending on factories and equipment by 2.9 percent in the year that began April 1, the Tankan showed. Economists expected an increase of 1.7 percent.
Companies tend to be conservative in their capital expenditure estimates in the March survey and upgrade them later. Last March companies said they were planning to boost spending 2.7 percent in the year. By December this had risen to 12.4 percent.
Manufacturers said they expect confidence to fall in June to 20 and non-manufacturers said they expect to be more confident in June with sentiment at 23.
Other reports have already signaled that companies will step up outlays on factories and equipment this year. Machinery orders, which typically point to spending in three to six months, had their biggest gain in five months in January.
Kyocera Corp., a components maker, said last month it will spend as much as 30 billion yen to double production of parts used in electronics.
Labor Shortages
Companies surveyed said the shortage of labor is becoming more severe compared with the previous quarter. An index of labor demand among large manufacturers fell to minus 7 in March from minus 6 in December. The jobless rate was at an eight-year low in February.
Today's report is unlikely to deter the central bank from raising borrowing costs later this year.
The report ``confirms there's no reason for much action from the Bank of Japan in the short term,'' said Chris Loong, head of currency and asset allocation at State Street Global Advisors in Sydney. Statements by two central bank board members to be appointed this month will be important signposts indicating the future direction of the bank's policy, Loong said.
The Tankan, which means short-term economic outlook in Japanese, is the nation's most closely watched gauge of business confidence. It asked 10,958 companies about their outlook for sales, profit, spending and hiring as well as overall sentiment.
To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net
Last Updated: April 1, 2007 20:14 EDT
