Weak Japan business confidence highlights recovery doubts

(MENAFN- AFP) Confidence among major Japanese manufacturers came in lower than market expectations, a central bank survey showed Wednesday, underscoring growing doubts about the prospects for a rebound in the world's number three economy.

The Bank of Japan's closely watched Tankan survey showed confidence at the country's biggest manufacturers stood at plus 12 in March, flat from the previous report and missing expectations that the level would come in at 14.

While sentiment among non-manufacturers was more upbeat, they pared back their profit expectations and Japan's corporate titans are rolling back their spending plans -- suggesting caution in boardrooms across the country.

The survey of more than 10,000 companies -- marking the difference between the percentage of firms that are optimistic and those that see conditions as unfavourable -- is the most comprehensive indicator of how Japan Inc. is faring.

Tokyo's benchmark Nikkei 225 index fell 0.44 percent at the open as investors reacted to the downbeat report.

"A weak yen and lower oil prices has provided some support (to the economy) but the Tankan showed that firms, particularly manufacturers, are now acutely aware that overseas demand is softening," said a report by SMBC Nikko Securities.

The tepid survey comes days after separate data showed that output at Japanese factories fell by a worse-than-expected 3.4 percent in February, while inflation stalled with a key measure of prices flat for the first time in nearly two years.

The gloomy data highlights the challenges facing Prime Minister Shinzo Abe's two-year-old bid to conquer deflation and revive the long-sluggish economy, dubbed Abenomics -- and they stand in stark contrast to Tokyo's relatively rosy assessment of Japan's prospects.

- 'Moment of truth' -

While a weak yen has lifted profits among Japanese exporters, it also jacks up import costs for firms and analysts have warned that the benefit of a cheap currency was fading.

Japan's quarterly financial reporting season gets under way later this month.

"A stall in forex rates and a bottoming out of oil prices would slam the brakes on firms' profit momentum," the SMBC Nikko report said.

"Abenomics could face its moment of truth in the second half of this year."

Abe's three-pronged plan consists of big government spending, a massive Bank of Japan monetary easing scheme, and a promised overhaul of the highly regulated economy.

While the scheme initially helped weaken the yen and stoked a stock market rally, it ran into trouble last year when Tokyo raised sales taxes to pay down Japan's enormous national debt -- one of the heaviest burdens among wealthy nations.

The levy hike hammered consumer spending as millions splashed out their yen on big-ticket items ahead of the rise, pushing the economy into contraction.

Japan clawed back with tepid 0.4 percent growth in the last quarter of 2014.

As doubts grow about his battle to revive Japan's economy, Abe has called on firms to reach into their enormous cash piles to lift wages, a move he hopes will stimulate spending and drive prices higher.

"Japanese companies aren't convinced the economy is going to get stronger," Atsushi Takeda, an economist at Itochu Corp., told Bloomberg News.

"Without an improvement in business confidence, it's hard to imagine Japan will achieve a full-fledged recovery."

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