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RPT-UPDATE 2-Japan firms less gloomy, see upturn - tankan
July 2, 2012 / 12:08 AM / in 5 years

RPT-UPDATE 2-Japan firms less gloomy, see upturn - tankan

* Big manufacturers' sentiment index -1 vs f'cast -4
    * Big non-manufacturers' index +8 vs f'cast +7
    * Big firms expect 6.2 pct rise in fiscal 2012/13 capex
    * BOJ seen holding off on easing on upbeat survey

    By Leika Kihara and Rie Ishiguro
    TOKYO, July 2 (Reuters) - Japanese manufacturers' business
mood improved for the first time in three quarters and
service-sector sentiment hit a four-year high, the central
bank's tankan survey for June showed, underscoring a view that
the world's third largest economy is headed for a recovery.
    Big manufacturers expect conditions to improve in the next
three months and plan increases in capital expenditure in the
current fiscal year to March 2013, the closely watched quarterly
survey showed on Monday, a sign that rebuilding from last year's
earthquake offset some of the pain from a strong yen and slowing
overseas growth. 
    The upbeat results in the tankan, which reflects broad
trends in the economy, will likely allow the Bank of Japan to
hold off on easing monetary policy next week, analysts said.
    "Big companies are benefiting from relatively firm overseas
economies and post-quake reconstruction demand at home even
though strength in the yen remains a concern," said Tatsushi
Shikano, senior economist at Mitsubishi UFG Morgan Stanley
Securities in Tokyo.
    "The tankan confirmed the economy is moving in line with the
BOJ's forecasts and it is unlikely to prompt the bank to ease
policy further anytime soon. I expect the BOJ to stand pat at
this month's review, unless a sudden spike in the yen threatens
to hurt corporate sentiment."
    
    The headline sentiment index for big manufacturers improved
three points to minus 1 in June, better than the median market
forecast of minus 4 and marking the first recovery in three
quarters, the tankan survey found. 
    Service-sector sentiment improved for the fourth straight
quarter to hit a four-year high of plus 8, as companies
benefited from solid private consumption and spending for
rebuilding from last year's earthquake.
    In a sign that resilience in domestic demand may be
sustained, big firms plan to raise their capital spending by 6.2
percent in the financial year that ends in March 2013, more than
the median forecast in a Reuters poll for a 3.5 percent
increase.
    Japan's economy is expected to outperform most of its G7
peers this year with growth of around 2 percent, helped by
earthquake reconstruction spending, with some central bankers
expecting to see a rebound in the autumn.
    But the stubbornly strong yen, Europe's continuing debt woes
and slowing growth in emerging economies are clouding the
outlook for the export-reliant economy.
    The tankan will be closely scrutinised when Bank of Japan
policymakers meet on July 11-12 to issue revised quarterly
growth forecasts and debate whether the economy needs further
monetary stimulus.
    Some analysts believe the central bank may ease monetary
policy again to show its determination to beat deflation.
    While the BOJ has signalled it is ready to act again, many
in the bank prefer to stand pat for now unless a yen spike or 
renewed market turmoil triggered by Europe's crisis threaten to
derail Japan's recovery prospects.
    The June tankan, compiled between May 29 and June 29, showed
big manufacturers revised up their dollar/yen estimates for the
current fiscal year, ending in March 2013, to 78.95 yen from
78.14 yen in the previous survey, a sign the pain from the
strong yen may be easing.
    Some analysts, however, warn that Japan's economic recovery
will be vulnerable to external shocks, such as a yen spike and
slowing growth in big export markets like China, given that the
boost from rebuilding for last year's earthquake is expected to
fade toward the end of this year.
    "Companies have not changed their dollar-yen rate
assumptions much but they have revised up their capital spending
and profit forecasts. This shows business confidence is on an
uptrend," said Naoki Iizuka, senior economist at Mizuho
Securities in Tokyo.
    "The BOJ may nevertheless be prompted to act this month as
the European Central Bank is likely to loosen policy this week
and the Federal Reserve has hinted at further easing."
    The BOJ set an 1 percent inflation target and eased policy
in February, and followed up with another monetary stimulus in
April to show its determination to beat deflation.
    The tankan's sentiment indexes are derived by subtracting
the percentage of respondents who say conditions are poor from
those who say they are good. A negative reading means pessimists
outnumbered optimists.

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