Oct. 1 (Bloomberg) -- Japanese manufacturers were optimistic about the world's second-biggest economy for the first time in more than 2 1/2 years in September as share prices surged and global growth accelerated, a Bank of Japan report showed. The central bank's quarterly Tankan index, the most closely watched measure of business outlook, showed confidence among large manufacturers rose to 1 from June's minus 5, the first time since December 2000 that optimists outnumbered pessimists. The Nikkei 225 Stock Average rose, extending a 35 percent rally since it dropped to a two-decade low on April 28. Sharp Corp., Canon Inc. and other exporters are increasing capital spending to meet growing orders for mobile phones, digital cameras and other goods. The survey released in Tokyo showed that large manufacturers plan to increase investment by 11.1 percent in the fiscal year ending March 31, underpinning a recovery from Japan's third recession since 1991.
``The Tankan is another confirmation of Japan's economic recovery,'' said Ichiro Takamatsu, who manages the equivalent of $500 million at Cigna International Investment Advisors Co. Confidence had been forecast to rise to zero, according to a Bloomberg News survey of 36 economists. The Nikkei rose 1.3 percent to 10,352.17 at 2:12 p.m. in Tokyo. The yen rose to 111.18 to the dollar from 111.49 late in New York yesterday.
Exporters
The Tankan survey mirrors rising confidence elsewhere. In Germany, the world's third-biggest economy, confidence rose in September to almost a 2 1/2-year high. U.S. manufacturing may have expanded at is fastest pace this year in September, economists said ahead of the Institute for Supply Management's factory index. Japanese exporters count on spending by U.S. consumers, the biggest overseas buyers of their goods. U.S. consumer confidence in September fell to the lowest in six months as the economy's failure to generate jobs raised concerns about whether the 3.3 percent pace of economic growth, the most since last year's third quarter, can be sustained.
Yen
The yen's 7.8 percent rise against the dollar in the past three months may also derail Japan's recovery before it extends to service providers and other non-manufacturers. Sentiment among large non-manufacturers was unchanged at minus 13, today's report showed. ``Exports have been a big factor in Japan's recovery, and a strong yen will not help,'' said Tatsushi Iwama, president of Sapporo Holdings Ltd., Japan's third-largest brewery. ``It would be better if the yen didn't strengthen any further.'' The Cabinet Office last week more than tripled its estimate for economic growth to 2.1 percent in the fiscal year ending March 31, citing gains in business spending. Large manufacturers in the Tankan survey expect sentiment to rise to a reading of 3 in the December survey. Sharp, Japan's biggest maker of liquid crystal displays, said last month it will spend 3.5 billion yen ($31.7 million) to increase production capacity of solar-powered cells.
Advantest Corp., the world's biggest maker of memory- chip testing equipment, raised its profit forecast almost sevenfold as South Korea's Samsung Electronics Co. and other chipmakers order more equipment.
`Bright Signs'
``There are bright signs of a recovery among large firms,'' said Kakutaro Kitashiro, head of the Japan Association of Corporate Executives and chairman of IBM Japan Ltd. Tankan -- which means short-term outlook -- surveyed 8,268 companies from Aug. 28 to Sept. 30 on their views of the economy, sales, profits, spending, employment and other business plans. Large companies are defined as corporations with more than 1,000 workers. The Tankan's employment index showed that more companies say they have excess workers. The economy shed 180,000 jobs in August on a seasonally adjusted basis. Unemployment fell to a two-year low of 5.1 percent as 310,000 people stopped looking for work, the government's statistics bureau said yesterday. ``Things are only looking good for exporters, but that growth isn't rippling through to non-manufacturers and the rest of the economy,'' said Motomitsu Honma, an economist at Sumitomo Mitsui Asset Management Co.
Exchange Rate
Large non-manufacturers plan to raise spending by just 0.4 percent in fiscal year 2003, and small companies plan to cut spending by 5.3 percent. The 740 large manufacturers surveyed in the Tankan expected an average exchange rate of 117.99 yen to the dollar for the year ending March 31. About 90 percent of the responses to the survey came before a statement by the Group of Seven nations endorsed more flexible exchange rates, signaling Japan might limit sales of its currency. Japan sold a record 4.46 trillion yen from Aug. 28 to Sept. 26 in an effort to stem the currency's gains and protect the economic recovery, a report from the Ministry of Finance in Tokyo showed yesterday. Net exports accounted for a fifth of Japan's 1 percent growth in the second quarter.
Companies such as Mitsubishi Electric Corp., Japan's fourth-biggest chipmaker, say a one yen move in the currency affects 3 billion yen in annual sales. The Tokyo-based company last month raised its group net income forecast to 2 billion yen, from an earlier forecast of break even. Credit Suisse First Boston's economic research team in Tokyo says a 10 percent appreciation in the yen would reduce gross domestic product by about 0.3 percentage point over a year, and cut manufacturers' profits by about 10 percent. //www.bloomberg.com