Confidence Up Among Japan's Big Manufacturers

Data is confirmation that lost production has recovered, but confidence has not recovered to pre-quake levels, says analyst.

As firms recovered from the impact of the country's March disasters, sentiment among Japan's major manufacturers turned positive in September, the central bank said in its Tankan survey on Oct. 3. Large manufacturer sentiment in September rose to two from minus nine in June, the quarterly survey showed, slightly lower than a market forecast of three. The sentiment of medium and small-sized firms remained negative.

The figures represent the percentage of companies saying business conditions are good minus those saying conditions are bad, with a positive reading illustrating that optimists outweigh pessimists.

The survey, which is taken into account by the BoJ when formulating monetary policy, saw large manufacturers forecast a reading of four in December, signalling expectations that conditions would continue to improve. However, this was below a December 2010 reading of five before the March quake.

"Companies are cautious," said Satoshi Osanai, economist at Daiwa Institute of Research. "Today's data is nothing more than confirmation that lost production has recovered. Confidence has not recovered to pre-quake levels."

The March disasters cause the nation's biggest firms such as Sony and Toyota to shutter plants and halt production due to shortages in electricity and parts after the disaster disrupted supply chains, sending production and exports tumbling. Tankan survey reflected the restoration of those supply chains, said analysts, as companies continued to restore output, illustrated by a large upswing in confidence for Japan's hard-hit vehicle manufacturers.

Automakers' sentiment saw a record improvement from minus 52 in June to 13 in September, the BoJ said, with output gradually being restored to pre-quake levels and companies hiring thousands of temporary workers.

Some analysts say the data will give the central bank some breathing space amid pressure to introduce further easing measures at its policy board meeting later this week. But they warn that despite five consecutive monthly increases in output, Japanese industry continues to face headwinds. "The swing (in automakers confidence) is a reaction from a plunge, rather than pointing to robust business," said Osanai.

The March disasters punctured a nascent economic recovery and bounced Japan back into recession. The situation was complicated in the summer after big users of electricity were forced to cut consumption, with around 80% of nuclear power plants offline amid public unease over the technology.

Japan's recovery from the triple disaster has been overshadowed by a strong yen, with the currency surging to a postwar high of 75.95 against the dollar in August on worries over the global economy. A strong domestic unit erodes the repatriated earnings of exporters and has prompted fears that more companies will move production overseas in search of cheaper labour costs. Japan has unveiled a plan to make $100 billion available to help companies acquire assets overseas while boosting its oversight of foreign exchange markets against speculative moves.

Copyright Agence France-Presse, 2011

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