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Confidence boost for Japan

01/07/2003 12:55
Companies in Japan are betting on a brighter future according to new figures, reinforcing hopes that the Japanese economy may finally be turning the corner.
Less than a week after Japanese factories showed their best rise in output in a year, the closely-watched Tankan quarterly survey of business confidence has showed optimism at its strongest in two years.

The markets' response was immediate, pushing the benchmark Nikkei 225 index to a close of 9,278.49 points - up 2.15% on the day for a nine-month high.

The yen, meanwhile, climbed slightly, offsetting recent falls against the dollar.


But despite the healthy Tankan reading for the April-June quarter, buried in the Bank of Japan's survey of thousands of businesses across the country were less encouraging signs.

While sentiment among large corporations for the quarter just finished rose from minus 10 to minus 5, the quarter still marked the tenth in a row during which the headline Tankan figure has remained negative.

And the confidence was much weaker among small companies, which have been squeezed by cost-cutting at the bigger firms to which they supply goods and services.

Meanwhile, the forward-looking element of the survey, measuring expectations for the next three months, was flat.


Still, observers were determined to see the upside, to be found in expectations of profits at large firms rising more than 11% this year.

"Corporate sentiment went down at the start of the second quarter reflecting the slowdown in exports but in May and June, exports started to pick up on the back of early signs of a recovery in the US economy," said Masaaki Kanno, chief economist at JP Morgan.

Other factors propping up the index are likely to include the waning effects of the Sars respiratory virus.

"Although there has been a feeling that the economy was losing momentum, the tankan gives us the impression that it may actually be improving," said Soichi Okuda, senior economist at Aozora Bank.

"The end of the Iraq war and a global stock market rally seem to be strongly reflected in the figures."