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4TH LD: Big makers' business confidence dips but outlook firm+
[April 02, 2006]

4TH LD: Big makers' business confidence dips but outlook firm+

(Japan Economic Newswire Via Thomson Dialog NewsEdge)TOKYO, April 3_(Kyodo) _ (EDS: ADDING GOV'T SPOKESMAN'S COMMENTS AT 7TH-8TH GRAFS)

Business confidence among major Japanese manufacturers fell in the three months to March for the first decline in four quarters, but their outlook remains positive, the Bank of Japan said Monday in its closely watched Tankan survey.

The central bank said its business sentiment index came to 20 for large manufacturers, compared with 21 in December. The average market projection was 23.

The index for major nonmanufacturers registered 18, up from 17 in the previous survey and posting the second consecutive quarterly improvement. The result matched the average market projection of 18.

The indexes represent the percentage of companies reporting favorable business conditions minus the percentage of those reporting unfavorable conditions.

For the quarter through June, the index for large manufacturers is projected to rise to 22, and that for major nonmanufacturers is forecast to climb to 19.

The figures suggested the deterioration in big makers' business sentiment was only temporary and the Japanese economy would remain on a recovery path.

Chief Cabinet Secretary Shinzo Abe told a news conference that the figures are in line with the government's view that the Japanese economy is on a recovery track.

But the top government spokesman said the government has not changed its position that the economy is under mild deflationary pressure.

Takehiro Sato, an economist and executive director at Morgan Stanley Japan Ltd., said the slight fall in the large makers' business sentiment index stemmed from deterioration in terms of trade on the back of rising prices in raw materials.

"I would say this is a rather strong Tankan result because almost all the data except large makers' business sentiment was good and tbe outlook remains positive," Sato said.

"The result is also likely to encourage the BOJ to explore the possibility of ending the zero-interest rate policy as early as summer," he said.

Rising share prices and bullish business sentiment are expected to prompt the central bank to raise short-term interest rates earlier than the initially expected October, analysts said.

According to the BOJ, the business sentiment index for midsize and small manufacturers came to 7 in March, unchanged from 7 in December, and that for their nonmanufacturing counterparts was minus 9, compared with minus 7 in the previous poll.

Reflecting the firm outlook, large companies in all industries plan to spend 2.7 percent more on plant and equipment in fiscal 2006, which began Saturday, than in fiscal 2005.

Large makers plan to spend 4.8 percent more in capital investment in the current fiscal year than in fiscal 2005, and large nonmanufacturers project an increase of 1.6 percent.

Midsize and small companies said they will invest 16.1 percent less in the current fiscal year.

The quarterly survey also suggested that more companies than in the previous poll are experiencing a labor shortage, raising hopes that the nation's employment conditions will improve in line with the economic upswing.

The diffusion index for employment conditions at big companies in all industries registered minus 6, compared with minus 2 in December, and is projected to remain unchanged at minus 6 in the three months through June.

The index is computed by the percentage of companies reporting having an excess of labor minus the percentage of those reporting a shortage.

Sales by large companies in all industries are forecast to rise 2.0 percent in fiscal 2006 from the previous year and those by midsize and small firms by 0.9 percent.

Pretax profit by large companies in all industries is projected to grow 2.6 percent in fiscal 2006 and that by midsize and small firms is forecast to jump 10.2 percent.

The survey was conducted between Feb. 27 and March 31 and covered 10,087 companies, of which 98.0 percent responded.

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