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Japanese business sentiment turns positive

Tokyo pedestrians walk by the Nikkei Stock Exchange sign in June.

Story highlights

  • A weaker yen and solid domestic demand has brightened the mood at Japanese manufacturers
  • Tankan report showed business confidence among large manufacturers rose to plus 4 from minus 8

A weaker yen and solid domestic demand has brightened the mood at Japanese manufacturers, six months into Prime Minister Shinzo Abe's big effort to jolt the world's third-largest economy out of deflation.

The Bank of Japan's quarterly Tankan report, released on Monday, showed that the key measure of business confidence among large manufacturers rose to plus 4 from minus 8 in March, the first time it has turned positive since September 2011.

Sentiment was better among large non-manufacturers too, with the headline "diffusion index" rising to 12, from 6 in March. The index is calculated by subtracting the percentage of companies saying business conditions are bad from those saying they are good.

The survey was conducted from the end of May through to the end of June, a period of heightened volatility in financial markets. However, it shows that the 20 per cent drop in Japan's trade-weighted currency has lifted spirits at companies of all sizes, and across most sectors of the economy.

Among the handful of sectors which reported worse business conditions, the sharpest falls were in areas relying on increasingly expensive dollar-based imports, such as petroleum and coal products (where the index dropped 19 points) and electric and gas utilities (minus 10 points).

The remainder showed the effects of Mr Abe's stimulus programme, launched days after he took office in December, which has prompted economists at the Cabinet Office and the Bank of Japan to consistently raise their assessments and outlooks for the economy. Data last week showed that the national consumer price index stopped declining in May, while retail sales climbed and industrial production rose by the most in 18 months.

The mood of Japan has "totally changed", said Ryoichi Nishizawa, 35 year-old chief executive of Neo Career, an employment agency which has seen a sharp pick-up in traffic through its café-style advice centres.

"We see a firm recovery in consumption as the stronger corporate outlook on the economy manifests itself in larger summer bonus payouts", said Naohiko Baba, chief economist at Goldman Sachs in Tokyo, before the release of Monday's data.

The Tankan survey also showed that companies plan to boost investment in property, facilities and equipment in the months ahead. Large enterprises across all industries said that fixed investment will rise by 5.5 per cent in the fiscal year that began on April 1, marking the sharpest turnround in a key measure of confidence since the first quarter of 2010.