2 April 2001, 19:02 FOCUS: BoJ March Tankan shows firms over-optimistic about fiscal H2 recovery
TOKYO (AFX-ASIA) - The Bank of Japan's March Tankan survey
indicates a faster than expected deterioration in business sentiment,
and companies' hopes of a recovery in the second half of the current
fiscal year are over-optimistic, economists said.
They said the corporate forecasts in the March survey may be
downgraded sharply in the next Tankan in June as the reality of the
slowdown bites.
The significance of the survey for monetary policy is limited as
the central bank has already done all it can to ease liquidity,
although generally the Tankan is seen as negative for the yen, they
added.
In the latest March survey, the large manufacturers' diffusion
index came in at minus five, while non-manufacturers was minus 13, with
large firms' year to March 2002 capital expenditure seen down 4.7 pct.
The consensus forecast of economists for the large manufacturers'
DI was plus one, with the large non-manufacturers' DI seen at minus 13
and large firms' capex for the year to March 2002 seen falling 4.0 pct.
In the December Tankan survey, the large manufacturers' diffusion
index came in at plus 10, while the large non-manufacturers' DI was
minus 10.
Commerzbank Securities chief economist Ron Bevacqua said the survey
was worse than consensus although "not outside the realms of
expectation," while it suggests manufacturers expect a rebound in the
second half of the year to March 2002, on a recovery in the U.S.
"The (DIs) are still falling but the rate of decline is slowing.
That's consistent with the capex of manufacturers becoming positive. In
unemployment, there's no increase in what they perceive to be excess
workers," he said.
However, "the recovery is driven almost entirely by exports and
that worries me," Bevacqua said, adding that the survey suggests
companies may be a little complacent about the likelihood of a U.S.
second half recovery.
JP Morgan senior economist James Malcolm said the survey suggests
large firms are being overly optimistic about the likelihood of a
rebound in the second half.
"In terms of sentiment, it is not much of a surprise but I think
business plans in terms of profit projections, sales and capex are a
little bit too optimistic" for large manufacturers, Malcolm said.
"They are based on the expectation of a strong rebound in the
second half, with a pick up in exports, that would mean a very
optimistic scenario for external demand," he said.
"In downturns, firms tend to be more optimistic -- it is the first
Tankan of the year, it is more like firms' targets than real
projections," Malcolm said.
"I expect a second Tankan with strong downward revisions in terms
of business plans, for profits, and little improvement for capex and
sales," he said.
"We think that (the downturn) is likely to be more prolonged than
one or two quarters, it depends a lot on the U.S. We expect a sharper
slowdown than in 1995 but less than in 1997-98," he said.
Morgan Stanley Dean Witter strategist Noboru Kawai noted the sharp
discrepancy between the market's perception of business conditions and
that of corporates shown in the Tankan survey.
"Business sentiment is deteriorating faster than my expectations. I
expect it will not slow down even after this summer," Kawai said. "We
have to monitor the situation more carefully."
However, he added that the Tankan's corporate indicators for the
second half of the fiscal year suggest businesses expect the slump will
be over quickly, with "a sharp rebound in profitability ... expected".
"Individual judgmental indicators such as those related to capital
investment, employment and even profits, are relatively more steady or
even aggressive in some cases," he noted.
"Manufacturers in particular appear to be feeling comfortable with
their existing approach to capital spending," he said.
"Although I do not think the market is impressed by corporate
expectations of a swift turnaround in the fiscal second half, (it) may
consider this sort of U-turn as a meaningful risk factor," Kawai said.
Industrial Bank of Japan economist Atsuo Tominaga said large
industrial firms may be forced to downgrade year to March 2002 capital
investment plans further unless global information-technology demand
picks up again.
"Their investment plans, depending on developments in offshore
demand, may face downside risk, although under normal circumstances
their plans have a tendency to be upgraded as time passes," he said.
"What is worrying, however, is their reaction to the yen's fall of
late," he added.
"The latest survey may mean that the yen's fall, due to the growing
business correlation between Japanese and Asian firms, no longer
positively supports the activity of Japanese firms," Tominaga said.
The sentiment DI for electronics makers, primary beneficiaries of a
weaker yen, fell to minus 9 in the March Tankan from plus 30 in the
December report, with this DI seen deteriorating further to minus 11 in
the June report.
BNP Paribas economist Naoki Murakami's views were more in line with
those of industry, forecasting a partial recovery in the second half as
the U.S. economy begins to improve.
"The only recovery factors are external. We assume the U.S. economy
will pick up from the second half, which will help Japan. Growth will
be led by exports," Murakami said, although this will see further
weakening of the yen.
"This Tankan will have an impact on the yen. We assume the rate
will reach around 130 yen (to the dollar) ... and average 125 yen for
2001," Murakami said.
However, Sanwa Research Institute senior economist Tatsushi Shikano
said the decline in the yen may not be enough to help firms out.
"The ongoing fall in the value of the yen may not be able to fully
compensate for the downward pressure on corporate earnings from the
decline in the U.S. economy," he said, with further pressure on
investment plans seen.
© 1999-2024 Forex EuroClub
All rights reserved