Japanese business mood improves

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Categorized | Currencies

The mood among big companies in Japan has improved but the outlook remains tempered by a strong yen and weak external demand, according to a key survey of business conditions released on Monday.

The Bank of Japan’s Tankan headline index, which compares the percentage of large manufacturers reporting positive business conditions with those reporting negative ones, improved to minus 1 in June, compared with minus 4 in the previous survey in March. For large non-manufacturers it rose from 5 to 8.

The result takes a little pressure of the Bank of Japan to take further easing steps at its policy meeting next week. Last month the BoJ upgraded its assessment of the economy, noting a “moderate” pick-up in activity, due mainly to reconstruction spending after the earthquake and tsunami last year and an improvement in consumer sentiment.

Still, many analysts still expect the central bank to take further easing actions, as its price forecasts for the fiscal year starting April 2013 are likely to fall short of the 1 per cent inflation goal it adopted earlier in 2012. In May the nationwide consumer price index, excluding fresh food, fell by 0.1 per cent year-on-year, in the first contraction since January.

Large manufacturers expect the yen to weaken slightly this fiscal year, but remain strong. They now forecast the dollar to average Y78.95, compared with their previous projection in March of Y78.14.