Executives at Japanese service companies were optimistic for the first time in seven years in March as an export-led recovery spread to consumers, the Bank of Japan's Tankan survey showed. Confidence among leaders at large manufacturers was the highest since 1997. The quarterly index of confidence among large manufacturers rose to 12 from 7 in December. Confidence among large non- manufacturers rose to 5 from zero. A reading above zero means optimists outnumber pessimists.
A revival in consumer spending is boosting sales at retailers including Takashimaya Co., helping sustain a recovery from Japan's third recession since 1991 as the yen's 13 percent advance against the dollar in the past year threatens to slow export growth. Retail sales rose for a second month in February and household spending unexpectedly gained. ``The economic recovery is gaining sustainability and broadening,'' said John Richards, fixed-income strategist at Barclays Capital Japan Ltd.
The yen was trading at 104.44 to the dollar at 1:20 p.m. in Tokyo, from 104.25 late yesterday in New York. The Japanese currency surged as high as 103.40 to the dollar yesterday, a four- year high, on expectations that today's Tankan report would prompt the government to scale back sales of the currency.
Yen Gains
Large manufacturers in the survey forecast the yen to average 108.43 to the dollar in the fiscal year starting today. Gains in the yen may hurt confidence, forcing the government to extend last fiscal year's record sales of 32.9 trillion yen ($315.4 billion) to protect the profits of exporters. ``If the yen rises above 100 per dollar, that would start to hurt stock prices and rekindle fears of a crisis in Japan's financial system,'' said Seiji Adachi, an economist at Credit Suisse First Boston in Tokyo. ``To avoid such risks, the Ministry of Finance will revive its yen sales.'' Japanese lenders and retail stocks such as Mizuho Financial Group Inc. and Aeon Co. rose. The Topix index fell 0.3 percent to 1176.12 at 1:20 p.m. in Tokyo. The Tankan, Japan's most closely watched index of business confidence, surveyed 10,562 companies on the outlook for sales, profits, spending and employment. Large companies have more than 1 billion yen in capital. The survey was taken Feb. 23 to March 31.
Jobs
Confidence among large service companies that depend on domestic demand was the highest since June 1992, today's report showed, led by real estate companies and wholesalers. Large non- manufacturers said they expect confidence to rise to 7 in June. They forecast current profits will rise 6.7 percent this year from a gain of 6.3 percent last year. Consumer sentiment rose to a 2 1/2-year high in the fourth quarter of last year as unemployment fell and a rally in stock prices boosted wealth. The unemployment rate fell to 5 percent in February from a record 5.5 percent in January of last year as companies including Seiko Epson Corp. hired more workers. Better job prospects are luring shoppers to department stores such as Takashimaya, which snapped an eight-month decline in sales in February, and encouraging them to spend on insurance, telecommunications and other services. ``Sentiment will get another boost as bonuses will likely increase this summer,'' said Takuji Aida, a senior economist at Merrill Lynch Japan Securities Ltd. Honda Motor Co. and Nissan Motor Co., Japan's second- and third-largest automakers, this month said they would pay record bonuses for the year starting April 1.
Capital Spending
Large manufacturers said they expect their confidence to remain at 12 in the June report, and capital spending growth to slow to 7.4 percent in the fiscal year that starts today from growth of 9.4 percent last year. Capital spending includes investments in land starting with this quarter's survey. Capital spending by large companies including Sharp Corp. and Canon Inc. accounted for two-thirds of Japan's 6.4 percent annual pace of growth in the fourth quarter, the fastest since Japan's asset-price bubble burst in 1990. ``The economy is moving in a relatively good direction, as capital investment in Japan is robust,'' said Toru Hasegawa, president of Yamaha Motor Co., the world's second-biggest motorcycle maker. Exporters including chipmaking equipment maker Advantest Corp. have led a 47 percent rally in the Nikkei in the financial year that ended yesterday, the biggest gain since 1973. Large manufacturers expect current profits to rise 7.3 percent this year compared with growth of 17.5 percent last fiscal year, today's report said.
Exports
Overseas sales rose to a record last year, driven by rising demand in the U.S. and China, Japan's biggest overseas markets. The U.S. economy expanded at the fastest pace in two decades in the second half of 2003, and China's expanded 9.1 percent last year. Confidence among small manufacturers rose to minus 3, the highest in more than 13 years, and among non-manufacturers it rose to minus 20, the highest in more than six years. ``The economic recovery is spreading through smaller and non- manufacturing companies,'' said Shigeru Endo, who helps oversee the equivalent of about $2.88 billion of fixed-income assets at Fuji Investment Management Co., a unit of Mizuho Financial Group Inc. Today's survey adds about 2,500 companies from the December report, expands industry categories and changes definitions of company size. As a result, the December large manufacturers' sentiment was lowered to 7 from 11, and large non-manufacturers' raised to zero from minus 9. ///www.bloomberg.com