Japan corporate mood worsens in April-June, but rebound expected

TOKYO (Reuters) - Big Japanese manufacturers turned pessimistic about business conditions in April-June but expect things to improve in July-September in a sign that companies see a quick recovery from the April 1 increase in the sales tax.

The business survey index (BSI) of sentiment at large manufacturers slid to minus 13.9 in April-June from plus 12.5 in the previous quarter. However, companies anticipate the sentiment index to improve to plus 16.0 in July-September due to expectations that consumer spending will quickly rebound.

The survey, released by the government, bodes well for the Bank of Japan's closely-watched tankan sentiment index due next month and points to a declining need for further monetary easing to support the economy.

"Companies expect a slowdown in growth after the sales tax hike to be temporary because they expect consumer spending to remain strong," said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting.

"The optimism is spreading to manufacturers. I think the chance of more monetary easing is very low," he said.

The BSI sentiment survey, which is released by the Ministry of Finance and a branch of the Cabinet Office, also showed that companies are turning more positive on capital expenditure, which is important for economic growth because it can fuel job creation.

The BSI measures the percentage of firms that expect the business environment to improve from the previous quarter minus the percentage that expect it to worsen.

Manufacturers plan to raise capital expenditure by 10.8 per cent in the fiscal year that started in April, more than the 2.4 per cent increase indicated in the previous survey thanks to expectations that exports will start to pick up momentum.

Non-manufacturers plan to raise their business investment by 1.5 per cent this fiscal year, a recovery from the 9.2 per cent decline seen in the previous survey.

Japan raised the national sales tax to 8 per cent from 5 per cent at the start of April to pay for rising welfare costs. A second tax increase to 10 per cent is scheduled for October next year.

Many firms benefited from a surge in consumer spending before the tax rose to 8 per cent. Data for April showed that consumer spending fell at the fastest pace in about three years immediately after the tax hike, raising questions about how quickly consumption will recover.

The BOJ, which releases its next tankan survey on July 1, has repeatedly argued that a tight labour market and upward pressure on wages will support consumer spending for the remainder of the year.

The central bank has stood pat since launching an intense burst of stimulus in April 2013, when it pledged to accelerate inflation to 2 percent in roughly two years via aggressive asset purchases in a country mired in deflation for 15 years.