Sentiment among big Japanese businesses improved in the three months to end-August, according to figures released on Thursday, suggesting that companies have not lost confidence as a result of recent market turbulence.
The finance ministry data, though not conclusive, helps make the case that an apparent 1.2 per cent annualised contraction of gross domestic product in the second quarter may have been overstated. At the time of the report last week, some economists questioned the sharp downward revision in capital spending, saying it did not fit with other data.
Economists are likely to suspend their judgement until release of the Bank of Japan’s authoritative Tankan survey on October 1.
But Richard Jerram, chief economist at Macquarie Securities in Tokyo, said Thursday’s data “showed a surprising improvement and indicates that the approaching Tankan survey should not contain anything too nasty”.
Mr Jerram also said the data, which showed the first improvement in business sentiment in four quarters, raised doubts about reliability of recent gloomier macro data. The survey closed on August 25 and so “should have captured much of the impact of the subprime shock”, he said.
On that day, the yen rose sharply – potentially damaging to exporters – and equities were sharply down.
Separately, Toshihiko Fukui, Bank of Japan governor, on Thursday expressed confidence that the domestic financial industry was also relatively insulated from financial turbulence. “In Japan, financial institutions’ investments in subprime-related products is small and at the moment it is unlikely to greatly affect the stability of our country’s financial system,” he said.
On Wednesday, after a two-day policy board meeting in which the bank voted to leave rates unchanged at 0.5 per cent, Mr Fukui had sounded a cautious note about the seriousness of the subprime crisis. Even then, he was relativelyconfident about the Japanese economy, saying: “Exports continue to increase and private-sector domestic demand is rising. Capital investment continues to trend upward against a backdrop of high corporate earnings.”
Masuhisa Kobayashi, chief JGB strategist at Barclays Capital, said he was not entirely ruling out a rate increase at the BoJ’s next meeting on October 11. That is a minority view, with many economists predicting an increase will now be postponed until the first quarter of next year.
But Mr Kobayashi said that the dissenting vote of Atsushi Mizuno, who voted for a rise this month and last to 0.75 per cent, left the door open. “The absence of dissention could have completely eliminated expectations for another rate hike within the year,” he said.
According to Thursday’s business confidence survey, the big business sentiment index was 6.2 against – 0.9 in the previous quarter. The index had turned negative in the June quarter for the first time since mid-2004.