Japan's big manufacturers turn optimistic in a sign economy picking up

An assembly line to produce hybrid engine motors is pictured at Honda's transmission factory in Hamamatsu, Japan.
An assembly line to produce hybrid engine motors is pictured at Honda's transmission factory in Hamamatsu, Japan.PHOTO: REUTERS

TOKYO (REUTERS) - Big Japanese manufacturers turned optimistic about business conditions in the third quarter and companies revised up their capital expenditure plans, a government survey showed on Tuesday (Sept 13), in a sign the economy is gaining momentum.

Large manufacturers said they expect sentiment to improve further in October-December, an encouragement to policymakers as they try to reenergise domestic demand and avoid a return to deflation.

The survey results could offer some relief to the embattled Bank of Japan, which holds a monetary policy meeting next week. The upgrade of capital expenditure plans also shows that the central bank's efforts to keep rates low are starting to spur corporate investment.

"Capital expenditure is holding up and consumer spending is starting to recover," said Hidenobu Tokuda, senior economist at Mizuho Research Institute. "We still need to be somewhat cautious about overseas economies, but the sentiment data is showing some encouraging moves."

The joint survey by the Ministry of Finance and the Economic and Social Research Institute, an arm of the Cabinet Office, recorded a business survey index (BSI) of sentiment among large manufacturers at plus 2.9 in July-September, compared with minus 11.1 in April-June.

Large manufacturers expect their sentiment index to improve to plus 8.6 in October-December, the survey released on Tuesday showed.

Japanese companies plan to raise capital expenditure by 4.9 percent in the fiscal year that started in April, up from their previous projection of a 3.8 per cent increase.

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.

Japan's economy grew faster over April-June than initially estimated, the Cabinet Office said on Thursday, with upward revisions to capital expenditure and inventories easing some concerns about weak consumer spending and exports.

The BOJ holds its next meeting on Sept 20-21, where it will review whether it needs to change its bold quantitative easing programme after repeatedly delaying the timing of meeting its 2 percent inflation target.

The BOJ is studying ways to steepen the government bond yield curve to lessen pressure on bank profits, sources familiar with the central bank's thinking have told Reuters.