Japan Tankan Signals Concern Confidence Will Keep Sliding

Japan’s large manufacturers signaled increased concern about business confidence in coming months after the nation’s strongest earthquake on record devastated the northeast region on March 11.

The quarterly outlook index of sentiment among big manufacturers is seen falling to minus 2 in June from 6 in March, the biggest drop since September, according to a breakdown of the Bank of Japan’s Tankan survey released in Tokyo today. A negative number means pessimists outnumber optimists.

The report underscores how last month’s disaster has worsened corporate sentiment, as damage to plants and power shortages limit production. Economists at Nomura Securities Co. and RBS Securities Japan Ltd. forecast gross domestic product will contract this quarter and stagnating sentiment may increase the case for the central bank to ease monetary policy further.

“Given the earthquake, the economy will likely contract both in the first quarter and the second quarter, putting off an escape from the economic lull,” Takahide Kiuchi, chief economist at Nomura in Tokyo, said before the report. “The BOJ may expand the size of its asset purchase program” this month.

The yen traded at 84.17 per dollar as of 9 a.m. in Tokyo. The Nikkei 225 (NKY) Stock Average rose 0.7 percent.
Car Sales Plunge

A report last week including all responses gathered from Feb. 24 to March 31 showed sentiment improving to 6 from 5 in December. Confidence among large manufacturers after the earthquake was little changed from a reading of 7 based on responses collected before the temblor.

Data so far for March have shown that manufacturing fell at the fastest pace in at least nine years, while new car sales in Japan decreased 37 percent, the biggest drop for the month ever. The earthquake and tsunami crippled Tokyo Electric Power Co.’s Fukushima Dai-Ichi atomic plant, causing the world’s worst nuclear crisis since Chernobyl in 1986.

Companies from Honda Motor Co. and Sony Corp. have halted production after the disaster.
Shortage of Parts

Toyota Motor Corp., the world’s largest automaker, has said it lost 140,000 units of production from March 14 to March 26, citing a shortage of electronic parts, rubber and plastics. Scarce parts and electricity may prompt it to delay making at least 500,000 vehicles in Japan, according to Koji Endo, an auto analyst at Advanced Research Japan. Honda Motor Co. has seen a production loss of 46,600 cars and trucks and 5,000 motorcycles.

March reports have overshadowed February data that showed industrial production rose for a fourth month and the unemployment rate dropped to a two-year low, data that indicated the economy’s resilience would cushion the effect of the natural disaster this quarter.

The overall sentiment index among large manufacturers climbed to 6 in March from 5 in December, the central bank said on April 1. The survey was conducted from Feb. 24 to March 31 and 72 percent of responses came by March 11, the day of the quake, the bank said.
Currency Intervention

The disaster, which has claimed more than 11,000 lives, has also caused a plunge in Japanese stocks and sent the yen to a post-World War II high against the dollar, prompting the first coordinated currency intervention by Group of Seven nations in more than a decade. Damage from the quake and tsunami is estimated by the government to swell to as much as 25 trillion yen ($300 billion). Prime Minister Naoto Kan is preparing an extra budget to pay for reconstruction efforts.

The BOJ doubled its asset-purchase program to 10 trillion yen on March 14, increasing the funds injections into the financial system. Nomura’s Kiuchi said the bank may increase the size of the asset buying program by between 3 trillion yen and 5 trillion yen at its meeting on April 28. The central bank will next meet on April 6-7.

The central bank is also considering offering temporary loans to banks to encourage lending to companies with cash-flow shortages in the wake of the quake, according to three people familiar with the matter.

source:bloomberg.com