Survey: Japanese businesses more upbeat

Iran Materials 3 July 2006 12:04 (UTC +04:00)

(AP) - Japanese companies are a bit more optimistic about their business prospects, a key central bank survey showed Monday, data that could sway the Bank of Japan to raise interest rates later this month.

The so-called "tankan" survey's most-watched index, measuring sentiment at large manufacturers, inched up to 21 from 20 in the second quarter from the previous quarter and regaining the level it achieved in the fourth quarter. The index measures the percentage of companies reporting that conditions are better minus those reporting that they are worse, reports Trend.

"This is a green light for the BOJ the BOJ is set to go" for a quarter point rate hike at its next policy-planning meeting on July 13-14, said Jesper Koll, chief economist at Merrill Lynch in Tokyo.

The Bank of Japan has been mulling the timing of an increase in interest rates at zero for five years to spur a recovery hike amid signs that Japan is finally emerging from a decade-long slump.

In particular, the central bank has said it won't act until prices, which had been declining, start to rise consistently. On Friday, the government said core consumer prices rose 0.6 percent in May, the seventh straight monthly gain.

The conditions for a rate increase "have mostly fallen in place with this good tankan result," added Michiro Shirakawa, chief economist at the Tokyo office of Credit Suisse Securities and a former BOJ official.

However, a scandal over Bank of Japan Gov. Toshihiko Fukui's investment in a fund run by a manager arrested on suspicion of insider trading could undermine the central bank's credibility and cause it to hold off on any changes, some experts say.

Government officials also have warned against an early increase in rates, which would raise borrowing costs, fearing it could choke off the recovery.

The modestly upbeat survey results pushed Japanese stocks higher in morning trading. The benchmark Nikkei 225 index added 74.63 points, or 0.48 percent, to 15,579.81 points at the close of morning trading.

The tankan survey is prized because it polls more than 10,000 companies across a wide spectrum of sizes and industries about their general outlook, expectations for profits and capital spending plans.

Sentiment among large non-manufacturers also picked up, rising to 20 from 18 in the previous quarter, it showed.

Conditions are expected to improve in the coming months, the survey showed, with large manufacturers forecasting a sentiment index reading of 22 for September, up 1 point from June. Big non-manufacturers expect a reading of 21 in September, also up 1 point.

The survey also indicated that companies are bullish about investing in equipment and factories.

Major Japanese firms plan to increase capital expenditure by 11.6 percent on average in the current fiscal year, which started in April, much better than a forecast of a 2.7 percent increase made in the March tankan survey.

"Basically the survey reflects the recoveries in earnings for businesses. I don't think that capital investment is overheating," said Shinzo Abe, Japan's top government spokesman.