Japan business sentiment steady in September

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TOKYO, Oct 1 (Reuters) Japanese companies' business sentiment remained resilient in September despite global market turmoil and fears of a U.S. slowdown, a Bank of Japan corporate survey showed on Monday, but it did not alter views that the BOJ will not be able to raise rates in coming months.

The BOJ's tankan, meaning short-term economic outlook, showed a headline diffusion index (DI) for big manufacturers' sentiment of plus 23.

That was slightly above the market's median forecast of plus 22 and matched the previous survey's reading in June.

''Big companies' sentiment remains at a high level and did not worsen much, which shows that the U.S. subprime woes did not hurt confidence much,'' said Seiji Adachi, senior economist at Deutsche Securities.

Japanese government bond futures opened down 0.19 point at 134.75 while euroyen futures slipped to 99.105 from 99.115 in early trading, after tankan's headline figure beat expectations.

The yen edged up to around 114.80 yen versus the dollar compared to around 114.90 before the tankan's release.

The latest data is closely watched by market players as they try to gauge the impact of the recent market turbulence, sparked by a growing number of defaults in the U.S. subprime mortgages, on Japanese companies' business sentiment.

The global market gyrations have resulted in a higher yen and a slide in the Japanese stock prices, both of which are seen as dampening companies' business outlook.

The tankan followed a mixed batch of economic indicators released last week that showed a solid rebound in production and consumer spending but also a rise in the jobless rate.

The diffusion index is calculated by subtracting the percentage of companies that consider conditions to be unfavourable from those that see them as favourable. A positive number means optimists outnumber pessimists.

The tankan also showed big firms expect their capital spending to rise 8.7 percent in the current fiscal year ending next March.

That was higher than the market's median forecast for a 7.5 percent rise and was up from the 7.7 percent increase seen in the previous survey in June.

''Capital spending plans were higher than expected. Overall, the tankan figures aren't that bad. The results are supportive for a Bank of Japan rate hike, although we expect the central bank to wait until January-March next year in raising rates,'' Adachi said. Traders were also focusing on capital spending plans by Japanese firms in gauging the strength of the corporate sector, a key driver of the world's second-largest economy.

The index for big non-manufacturers stood at plus 20, below the consensus forecast and down from +22 three months ago.

Big manufacturers' outlook index for December was seen at plus 19, showing that they expect business conditions to worsen over the next three months.

The outlook index for big non-manufacturers stood at plus 21.

The survey covered 10,750 companies, of which 2,459 were categorised as large. It was conducted from Aug 28 to Sept 28.

The prevailing view in the market now is that the BOJ may stand pat on interest rates for the rest of this year until the cloud of uncertainty over financial markets clears.

Economists also point to a possible slowdown in the U.S.

economy, Japan's biggest export destination, as a risk factor in the outlook for the Japanese economy.

The next BOJ policy-board meeting is slated for October 10- 11.

The central bank has kept interest rates on hold after raising the key policy rate to 0.5 percent in February, which was the first rate hike since July last year.

Reuters MP VP0610

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