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Japan's Manufacturers More Cautious, But Outlook Brighter

Japan's big manufacturers grew unexpectedly more cautious for the first quarter but corporate spending and profits are picking up, underpinning the economic recovery, a key survey showed April 3. The Bank of Japan's Tankan report, showed a drop in the headline index for large manufacturers to 20 in March from 21 in December.

The figure missed market expectations for a fourth straight rise to 23 as Asia's largest economy awakens from its decade-long slumber. Peter Morgan, chief economist for Japan at HSBC Securities, said overall the report still pointed to a robust economy, with increased spending by firms and consumers helping to keep the recovery on track.

Large non-manufacturers fared better, with confidence up one point to 18. A positive reading means that confident firms outweigh pessimistic ones. "The domestic economy is increasingly driving the economic recovery as non-manufacturing confidence rises while manufacturing slips marginally," noted Richard Jerram, chief economist for Japan at Macquarie Securities.

The report, which surveys more than 10,000 companies, showed that small companies remained cautious about the corporate outlook although mid-sized firms grew more upbeat.

Looking ahead, the index for big manufacturers is seen rising two points to 22 in June, with large non-manufacturers up one point to 19.

Boding well for the recovery, Japanese companies -- excluding financial firms -- together raised their capital spending on plant and equipment by 10.6% in the year to March 2006.

"Also, the Tankan suggests an intensifying sense of a workforce shortages across the board," Morgan Stanley economist Takehiro Sato said.Unemployment fell to a seven-year low of 4.1% in February, from 4.5% in January.

Copyright Agence France-Presse, 2006

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