TOKYO • Japanese business confidence improved for a fifth straight quarter in the three months to December to hit an 11-year high, a central bank survey showed, a sign the economy is gathering momentum from robust exports and booming corporate profits.
But big manufacturers and non-manufacturers expect business conditions to worsen in the next three months, highlighting their reluctance to embrace the improved operating environment via increases in wages and investment.
Nudging cash-rich firms into spending more on wages has been a priority for Prime Minister Shinzo Abe's efforts to vanquish the deflation that has plagued Japan for nearly two decades.
As part of those efforts, Mr Abe's ruling coalition approved a plan on Thursday to slash the corporate tax rate - but only for companies that increase spending - a move that could brighten business sentiment in coming months.
The closely watched "tankan" survey also showed that capacity constraints and staff shortages were increasing price pressures, which would help the Bank of Japan (BOJ) achieve its elusive 2 per cent target but could squeeze corporate margins ahead.
Still, many analysts doubt wages will rise much and therefore expect any interest rate hikes to be some time away.
RATE HIKES UNLIKELY
The tankan results support the BOJ's bullish economic view backed by global economic recovery.
But prices remain weak and far below the BOJ's price target. There's no way it can move to tighten policy any time soon.
MR HIDENOBU TOKUDA, senior economist at Mizuho Research Institute.
"The tankan results support the BOJ's bullish economic view backed by global economic recovery," said Mr Hidenobu Tokuda, senior economist at Mizuho Research Institute.
"But prices remain weak and far below the BOJ's price target. There's no way it can move to tighten policy any time soon."
The headline index for big manufacturers' sentiment stood at plus 25 this month, the tankan showed yesterday, up from plus 22 in September and slightly higher than a median market forecast for plus 24.
It matched the high reached in December 2006, when a booming economy allowed the BOJ to end a previous spell of quantitative easing and zero interest rates.
An index measuring big non-manufacturers' sentiment was unchanged from September at plus 23, matching forecasts.
Big firms expect to increase capital expenditure for the current fiscal year to March 2018 by 7.4 per cent, roughly in line with forecasts, the tankan showed. It showed that conditions for price and wage gains were gradually falling into place.
An index measuring employment conditions showed that firms were faced with the most severe staff shortages since 1992, while their capacity to meet demand was at its tightest since 1991.
An index gauging output prices hit a nine-year high for big manufacturers, a sign that more large companies were in a position to raise prices - reflecting strong demand.