Japanese business confidence plunged in the months after the March 11 earthquake, turning negative for the first time in over a year, the Bank of Japan said in its quarterly Tankan survey Friday. But firms expect conditions to improve by September and analysts said plans to increase capital spending signalled recovery hopes even amid uncertainty due to looming power shortages following the crisis at the tsunami-ravaged Fukushima Daiichi nuclear plant.
Large manufacturer sentiment in June dropped to "minus 9" from "6" in March, a plunge of 15 points and the first negative reading in five quarters. The reading was worse than the median forecast of "minus 7" by economists polled by Dow Jones Newswires. The figure represents the percentage of companies saying business conditions are good minus those saying conditions are bad. The survey is taken into account by the BoJ when formulating monetary policy. The March disasters devastated entire towns along the north-east coast and left 23,000 dead or missing while wreaking havoc on Japanese industry, pushing the economy into recession in Japan's worst crisis since World War II.
The nation's biggest firms such as Sony and Toyota were forced to shutter plants and halt production due to shortages in electricity and parts after the disaster disrupted supply chains, sending output and exports tumbling. The June survey showed sentiment among automakers, which were particularly hard hit due to a lack of components, plunged by a record 75 points to "minus 52". The strength of the yen versus major currencies is also a concern for firms, as it erodes overseas earnings when repatriated. However, Japan's recovery has been seen to be quicker than expected, as companies approach normal production levels ahead of earlier forecasts amid expectations that reconstruction spending will boost the economy.
The survey showed that big companies expected sentiment to improve to plus two in the next survey in September, and boost capital spending by 4.2 percent in the current fiscal year. "Business sentiment (among major manufacturers) is continuing to recover gradually, reflecting rebounding production," said Naoki Murakami, chief economist at Monex. Recent data suggest the worst may be over following the disaster, say analysts. Industrial output posted the second-largest gain on record in May, with a 5.7 percent on-month rise.
However, the government warned this may have been partly driven by firms boosting production ahead of a decree to reduce electricity consumption by 15 percent for three months starting Friday to avoid blackouts during the peak summer months amid reduced capacity.
Other data on Friday showed Japan's core consumer price index rose by a higher than expected 0.6 percent in May from a year earlier, boosted by surging energy prices. Data on Friday showed Japan's unemployment rate fell to 4.5 percent in May from 4.7 percent in the previous month, with figures from disaster-hit north-eastern Japan excluded, the government said. Household spending in May fell by an inflation-adjusted 1.9 percent from a year earlier.