Major Japanese Companies More Cautious

March 27, 2006
Major Japanese firms have become less confident for the first time in four quarters due to high oil prices and prospects of rising interest rates, a survey showed March 27. The business sentiment index for large companies fell to 6.1 in the three months ...

Major Japanese firms have become less confident for the first time in four quarters due to high oil prices and prospects of rising interest rates, a survey showed March 27. The business sentiment index for large companies fell to 6.1 in the three months to March from a record high 10.5 in the previous quarter, according to a joint survey by the finance ministry and the cabinet office.

"The economy is still growing, albeit at a more moderate pace than in the previous quarter," said Kenji Arata, senior economist at Informa Global Markets (Japan). Against that backdrop, he expects the Bank of Japan's Tankan survey of business sentiment survey, due April 3, to show a rise in the headline index for large manufacturers to 22 from 21 in December.

"Companies appeared to be cautious because of the possibility of spikes in crude oil prices which could hit corporate profitability," said Arata. Corporate managers were also concerned about the prospect of higher interest rates after the Bank of Japan ended its five-year ultra-loose monetary policy earlier this month, he added.

The survey found that the combined current profit of all Japanese firms is now expected to grow by 3.6% in the year ending March 31, slower than the 6.8% expansion forecast in the pervious survey.

Japanese companies have decided to revise down their capital investment plans for the current financial year, according to the poll. The combined capital investment of all firms is now expected to expand 11.1%, compared with an increase of 11.8% previously forecast. For the next year to March 2007, their combined capital outlays are predicted to fall by 8.7%.

"Japanese firms have a tendency to conservatively set capital investment plans at the beginning of the new fiscal year and revise it up gradually toward the end of each fiscal year," a finance ministry official said.

Copyright Agence France-Presse, 2006

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