Quarterly survey shows confidence among large manufacturers is climbing
Confidence among Japan's largest manufacturers rose to a two-year high in December, easing concern that growth in the world's second-largest economy is losing momentum.
The quarterly Tankan survey, Japan's most closely watched gauge of business sentiment, showed confidence among large manufacturers climbed to 25 points from 24 in September, the Bank of Japan said. Among service industries ranging from banking to real estate, sentiment rose more than forecast.
Bonds fell because the survey may help persuade the central bank to increase interest rates, the lowest among major economies, as soon as January. Demand for services rose the most in six years, a separate report showed, adding to optimism the economy will accelerate after growing at the slowest pace in almost two years in the third quarter last year.
"The December Tankan essentially contains everything the Bank of Japan wants to see occurring,'' said Glenn Maguire, chief Asian economist at Société Générale in Hong Kong. "The surprising strength in sentiment was in the non-manufacturing sector.''
The yield on Japan's benchmark 10-year bond rose 3.5 basis points to 1.66% in Tokyo. Sentiment for large non-manufacturers rose to 22, beating the estimate for 20. Large manufacturers plan to increase spending by 12.4% in the year ending 31 March, the fastest pace since 1991, and above the 11.5% gain they forecast in September.
Meanwhile, the economic recovery is spreading. "The Japanese economy's looking very good from where I'm standing,'' said Shigehiko Hattori, president of precision toolmaker Shimadzu. "Our hiring plan is aggressive.'' The yen traded at 117.92 per dollar compared with 117.70 before the report was published. The business confidence reading matched the median estimate of 44 economists surveyed by Bloomberg News.
"The Tankan survey was good and it showed the economic recovery is spreading through Japanese companies and they are keeping up with the high pace of capital spending,'' said Koji Ochiai, senior market analyst at Mizuho Securities Co.
A report on Japan's demand for services, which make up about 60% of the economy, added to optimism. The tertiary index, a gauge of money spent on services such as communications, transport and leisure, advanced 2.1%, the trade ministry said. "The overall economic situation is favourable,'' finance minister Koji Omi said, adding that corporate strength will feed into wages and consumption.
Elsewhere, there was concern the country's longest post-war recovery may be losing steam was heightened after a report showed the economy expanded at a 0.8% annual pace in the third quarter, lower than the government's initial 2% forecast. The 0.9% drop in household outlays was the biggest since a 3.6% decline in the second quarter of 1997, when a sales tax increase choked off spending.
Other reports have showed mixed results. The most recent figures on inflation, economic growth and machinery orders were all lower than economists estimated. Industrial output unexpectedly climbed to a record in October. The business confidence survey focuses on business activity and doesn't give a full picture of consumer spending, the biggest drag on third-quarter economic growth.
The lack of personal consumption data "makes it difficult for the survey alone to be a determining factor in a rate increase", said Yoshimasa Maruyama, an economist at BNP Paribas Securities in Tokyo.
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