Japan’s manufacturing gloom set to clear as yen improves outlook

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.

Yen ‘Weapon’

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.

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