Japanese manufacturers' business sentiment worsened for the first time in nearly two years this quarter but the gloom was not as severe as expected, giving the Bank of Japan breathing room before pondering its next move. But big manufacturers expect conditions to deteriorate over the next three months, the BoJ's closely watched tankan survey showed on Wednesday, keeping up pressure on the central bank to support the fragile economy with its ultra-easy monetary policy.
"The figures show the economic recovery is in line with the BoJ's scenario, in that a slowdown is one-time and a recovery will resume next year," said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management.
The headline index measuring big manufacturers' sentiment fell to plus 5 from September's plus 8, marking the first decline in seven quarters. But it exceeded a median market forecast of plus 3. The index for March next year was seen at minus 2, showing that the murky economic outlook was making companies cautious about business conditions in the coming three months.
BoJ policymakers are expected to scrutinise the tankan at their rate review next week, although the central bank is seen holding off on easing monetary policy further after having taken action in October. "The BoJ is likely to stick with its current status for a while," said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute.
"Rather than economic indexes, the trigger is likely to come from the market, such as stocks falling greatly or the yen strengthening even more due to overseas events." Big firms plan to increase capital spending by 2.9 percent in the year to March 2011, slightly more than a median forecast for a 2.7 percent rise and recovering from a 15.5 percent decline in the year ended in March.