Japan business confidence up for second straight quarter

01 October 2009 0959 hrs (SST)

TOKYO: Japanese business confidence has improved for a second straight quarter as the world's number two economy slowly emerges from its worst recession in decades, the Bank of Japan said Thursday.

Sentiment among major manufacturers improved to minus 33 in September from minus 48 in June, after hitting a record low of minus 58 in March, according to the central bank's closely watched Tankan survey of more than 10,000 firms.

But the index - which measures the percentage of firms that think business conditions are good minus those that believe they are bad - suggests that many companies are still gloomy about the outlook.

The confidence index for major non-manufacturers rose to minus 24, from minus 29 three months earlier.

The Tankan found that big manufacturers expect sentiment to continue to improve, forecasting a sentiment rating of minus 21 for December.

But the profit outlook remains bleak. The major makers forecast a 38.9 per cent drop in pre-tax earnings for the current financial year to March, after a 61.9 per cent plunge last year.

Japan's corporate sector, particularly major manufacturers such as Sony and Toyota, were a key driver of growth in Asia's largest economy before the global economic crisis erupted.

Now many companies are cutting back their investment in an effort to ride out the economic downturn, which battered their sales and sent the yen soaring against other major currencies, eating away at their profits.

Large manufacturers plan to slash their spending on plants and equipment by 25.6 per cent in the year through March 2010 compared with the previous year, according to the Tankan survey.

Japan is crawling out of a particularly brutal recession caused by a collapse in overseas demand for its cars, electronics and other goods.

Its economy grew in April-June for the first time in five quarters, but the unemployment rate is at a record high and deflation is deepening amid weak domestic demand, while a strong yen is threatening exports.

The Organisation for Economic Cooperation and Development predicted on Wednesday that Japan's economy would grow by 0.9 per cent in 2010, after a huge 6.0 per cent contraction this year.

The major manufacturers' earnings forecast is based on the assumption that the dollar will average 94.50 yen during this fiscal year.

On Thursday the greenback was changing hands for 89.78 yen, suggesting that exporters may have to downgrade their outlooks unless the dollar strengthens.

- AFP/yb