Bloomberg News

Japan Tankan Sentiment Improves on Post-Earthquake Recovery

October 02, 2011

(Updates with economist’s comments in fourth paragraph.)

Oct. 3 (Bloomberg) -- Sentiment among Japan’s largest manufacturers improved, while remaining below levels seen before the March earthquake, signaling concern that weakening global demand will restrain the nation’s recovery.

The quarterly Tankan index of sentiment at large manufacturers rose to 2 in September from minus 9 in June, the Bank of Japan said in Tokyo today. The reading was in line with the median estimate of 23 economists surveyed by Bloomberg News. A positive number means optimists outnumber pessimists.

Japanese companies have been restoring operations after the quake and tsunami disrupted supply chains, with Toyota Motor Corp. boosting production for the first time in a year in August and hiring temporary workers. The risk is that a currency near postwar highs against the dollar and slowing growth in the U.S. and Europe may sap demand for Japan’s products in months ahead.

“We can be happy we’re not seeing a further slump here,” Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo, said in an interview with Bloomberg Television. At the same time, companies are indicating “we are really not charging forward right now,” given risks in the global outlook and the continued wait for Japan’s government to implement full-scale reconstruction, he said.

Recent reports have confirmed a continuing rebound from the March 11 disaster, with consumer confidence holding at a post- quake high in August and industrial production increasing for five straight months. Overseas shipments gained in August for the first time since February, trade data showed.

Risk to Recovery

Even so, some data highlight the economy’s vulnerability to a slowdown in coming months. Machinery orders, an indicator of future capital spending, slid 8.2 percent in July and payrolls slumped in August.

Underscoring the challenges facing Japan’s export-led recovery, the International Monetary Fund last month cut its global growth forecast to 4 percent for this year and next.

To keep the recovery going, Prime Minister Yoshihiko Noda’s government is implementing measures to cope with the yen’s gains, including subsidies for companies. The ruling Democratic Party of Japan proposed last week a 12 trillion yen ($156 billion) stimulus package to support an economy recovering from the record temblor and tsunami.

The finance ministry is also making $100 billion of its currency reserves available to companies to help them acquire overseas assets and have extended its supervision of foreign- exchange positions through the end of the year after initially intending to conduct monitoring through September.

‘Throw Cold Water’

“The yen staying around the high-70s could throw cold water on the Japanese economy’s recovery trend,” Finance Minister Jun Azumi said at a press conference in Tokyo on Sept. 30. He also said he’s ready to take “bold actions” in markets, signaling the possibility of more intervention in the currency market after Japan sold yen in August.

Manufacturers including Panasonic Corp. are shifting part of their operations overseas in a move that may mitigate the yen’s impact on their performance. Panasonic, one of the world’s largest consumer electronics companies, is moving the headquarters of its $57 billion procurement operation to Singapore from Osaka in the year starting April 2012, Masaaki Fujita, an executive in charge of the business, said last month.

“The danger is early next year” as the yen and faltering demand abroad weigh on exports, said Noriaki Matsuoka, an economist at Daiwa Asset Management in Tokyo.

--With assistance from Toru Fujioka, Takashi Amano and Misato Watanabe in Tokyo and Susan Li in Hong Kong. Editors: Lily Nonomiya, Ken McCallum

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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