Japanese Prime Minister Shinzo Abe took power in December as confidence among manufacturers hit a three-year low. Now, as the yen weakens and stocks surge, sentiment is set to rebound by the most since 2011.
The large manufacturers’ index in the Bank of Japan’s Tankan survey due April 1 will rise to minus seven in March from minus 12 in December, according to the median forecast of 17 economists surveyed by Bloomberg News. The outlook index, a gauge of how firms see conditions in three months, may increase to plus one from minus 10. A positive reading means optimists outnumber pessimists.
Abe needs companies to boost investment and wages for his policies to have a lasting effect on prices and economic growth. Improving sentiment may help Bank of Japan Governor Haruhiko Kuroda achieve a 2% inflation target as he prepares to unleash stimulus at his first policy-setting meeting next week.
“We can expect manufacturers to gain in confidence throughout the year,” said Tomo Kinoshita, chief economist at Nomura Holdings Inc. in Tokyo. “Kuroda will raise market expectations for further easing, lifting stock prices, which in turn will boost corporate sentiment and investment.”
The yen strengthened yesterday to 94.20 per dollar as of 5:50 p.m. in Tokyo on concern over Europe’s debt crisis, paring its more than 8% fall since the start of the year on Abe’s pledge to revive the economy. The Nikkei 225 Stock Average fell 1.3% after reaching a 4 1/2 year high last week.
Industrial production data for February due today will probably show a 2.5% rise from the previous month, according to a separate survey of economists.
Kuroda, who has said that influencing expectations is crucial to ending deflation, told lawmakers yesterday that he would push for more monetary stimulus until 2% inflation is achieved. The BOJ meets on April 3-4.
The yen’s fall has drawn criticism from trading rivals, with South Korean carmaker Kia Motors Corp. saying yesterday the currency is becoming a “weapon” for Japanese competitiveness.
While companies in the Nikkei index showed a more than 50% decline in aggregate net income in the four years through 2012, according to data compiled by Bloomberg, firms including Toyota Motor Corp. have raised profit estimates for the fiscal year starting next month.
Toyota agreed this month to pay its employees in Japan the biggest bonus in five years and Kubota Corp., a tractor maker, predicts record sales.
Despite the improved outlook, a negative reading on the Tankan’s main sentiment index may reflect lingering caution, with Honda Motor Co. on Jan. 31 forecasting lower net income for this fiscal year, based on an exchange rate of 81 yen per dollar.
“Sentiment is recovering and will likely gain momentum, but businesses still aren’t confident enough,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo and a former central bank official. “Carmakers are looking good on the weaker yen, while others, such as firms in the electronics industry, are struggling with weak domestic demand.”
Fujitsu Ltd., which makes semiconductors and computers, said in February it would eliminate 5,000 jobs. At least a third of those cuts will be in Japan, the company said yesterday.
Some executives at Japanese companies say the yen hasn’t weakened enough, with Carlos Ghosn, chief executive officer of Nissan Motor Co., saying this week he thinks the currency is still in “handicap territory.”
The currency’s weakness is yet to significantly boost exports, which fell in eight of nine months through February. The import bill has swelled as the weaker yen drives up energy and commodity prices, adding to cost pressures for companies.
Outside the manufacturing sector, firms are more optimistic. The index for large non-manufacturers is forecast to rise to plus eight from plus four, for a seventh positive quarter.
Mizuho Financial Group Inc., Japan’s third-biggest bank by market value, will raise bonuses for the first time in five years after profit grew, spokeswoman Masako Shiono said yesterday.
More easing by the BOJ may help to push the yen lower. Kuroda said this week the BOJ will consider combining its monthly bond purchases and asset purchase fund, as well as buying more debt with longer maturities and scrapping a rule that limits the scale of bond buying. He has also suggested bringing forward open-ended asset purchases planned for 2014.
The median forecast in a survey of analysts by Bloomberg News is for the yen to weaken to 97 per dollar by the end of the year.
Goldman Sachs Group Inc. on March 18 raised its growth forecast for next fiscal year to 2.3% from 2.1%, its second upward revision this quarter.