July 1 (Bloomberg) -- Executives at Japan's large manufacturers were the least pessimistic in two years in June as stock indexes rose from 20-year lows, suggesting the world's second-largest economy may dodge a fourth recession since 1991. The Nikkei 225 Stock Average rose to a nine-month high after the Bank of Japan said in Tokyo that its quarterly Tankan survey showed sentiment rose to a better-than-expected minus 5 from minus 10 in March. That was the highest since March 2001. A negative number means pessimists outnumber optimists. The Nikkei's 14 percent rise in the second quarter is helping companies such as Satori Electric Co. limit losses on the value of their share holdings. Rising profits are prompting companies to increase spending plans by 4.9 percent in the year ending March 31, 2004 improving the outlook for economic growth.
``With the stock market recovering, we don't expect to have more losses on our shareholdings,'' said Kazuhisa Hirose, investor relations manager at Satori Electric, which wrote down the value of its stock investments by 204 million yen ($1.7 million) in the year to May 31. ``The worst is over, but we're still probably about half way on the road to a full recovery.'' The Nikkei rose 2.2 percent to close at 9278 at 3 p.m. in Tokyo, the highest since Sept. 30. Gains were led by companies such as Fanuc Ltd., a maker of industrial robotics, and NEC Corp., Japan's No. 2 maker of semiconductors. NEC shares rose 10 percent for the day after the company's chip unit, NEC Electronics Corp., increased its initial public offering to as much as 142.8 billion yen. The company is raising money to pay debt and fund a new semiconductor plant using the most advanced chipmaking technology.
Growth Slows
Japan's economic growth slowed to a gain of 0.1 percent in the first quarter of 2003 as the Iraq war hurt exports. The economy probably shrank in the second quarter because severe acute respiratory syndrome, or SARS, cut shipments to the rest of Asia, which buys two-fifths of Japan's shipments, economists said. ``There will be some upward revision'' to gross domestic product in the second and third quarters after the Tankan survey, said Takehiro Sato of Morgan Stanley Japan, the only economist in the Bloomberg survey to correctly predict the sentiment index. ``I'm a bit more confident about the sustainability of demand in the second half.'' Sato said he may revise his second-quarter gross domestic product forecast to a drop of 0.3 percent from a 0.5 percent decline after today's Tankan survey. He may also change his outlook for the third quarter to growth of 0.1 percent from a drop of the same size. Concern that SARS will cut Asian demand for Japanese products from cars to cell phones also eased after the World Health Organization lifted travel advisories for Singapore, Hong Kong and Beijing in May and June.
Yen Gains
There are other signs of a Japanese recovery. Industrial production had its biggest gain in a year in May, and exports rose in both April and May. Companies such as Mazda Motor Corp., Japan's fifth-largest automaker and a third owned by Ford Motor Co., are stepping up spending. Mazda plans to raise capital spending 25 percent this year to develop new cars for domestic and overseas markets. Cost cuts helped Mazda return to profit from a record loss in 2001. ``We can't save ourselves to prosperity,'' said Lewis Booth, president of Mazda. ``The market proved that in periods you have no new product, our sales suffered quite substantially.'' Today's Tankan report showed that large companies -- those with more than 1,000 employees -- plan to increase business investment by 4.9 percent in the year ending March 31, compared with a 0.8 percent cut forecast in the previous survey.
Consumer Spending
Higher investment, though, may not counter declines in consumer spending, which accounts for 55 percent of Japan's economy. Near record unemployment of 5.4 percent and falling wages have hurt household spending, which fell 1.8 percent in May from a year earlier, the eighth straight drop. ``I can see positive indications from big manufacturers,'' Economy Minister Heizo Takenaka told reporters after a Cabinet meeting. ``From the view of the overall economy, we may be recovering but in the short term, we're still in a stalling condition.'' The Tankan -- which means short-term outlook -- surveys executives at 8,343 companies on their views of the economy, sales, profits, spending, employment and other business plans. The survey was conducted between May 30 and June 30. The index of sentiment among large manufacturers had been expected to remain unchanged at minus 10, according to a Bloomberg News survey of 40 economists. Large manufacturers predict an average exchange rate of 117.88 yen to the dollar for the 2003 business year, according to the survey. The yen was at 119.85 per dollar at 7:45 a.m. in London from 119.80 late yesterday in New York.
Large manufacturers also expect sentiment to be unchanged at minus 5 in the September survey. Sentiment at large non-manufacturers rose to minus 13 in the second quarter from minus 14, today's report showed. //www.bloomberg.com