Bloomberg Japan Business Confidence Rebounds; Demand for Services Rises

June 22 (Bloomberg) -- Japanese manufacturers became less pessimistic this quarter and demand for services rose in April amid signs the country’s worst postwar recession is easing.

Sentiment was minus 13.2 points this quarter compared with minus 66 three months earlier, a joint survey by the Cabinet Office and Finance Ministry showed today. The tertiary index, a gauge of money spent on phone calls, power and transportation, climbed 2.2 percent from March, the Trade Ministry said.

The Nikkei 225 Stock Average has climbed 39 percent since dropping to a 26-year low on March 10, buoyed by speculation $2.2 trillion in stimulus spending by governments worldwide will rekindle overseas demand for Japanese products. Tax breaks and shopping incentives introduced by Prime Minister Taro Aso have helped lift consumer confidence to a 14-month high.

“There’s a recovery on the way for Japan,” said Jan Lambregts, head of Asian research at Rabobank International in Hong Kong. “There’s a lot of stimulus there and that will help, but not all of the growth is coming back.”

The yen traded at 96.12 per dollar as of 8:55 a.m. in Tokyo from 96.08 before the reports were published. A negative reading on business confidence means pessimists outnumber optimists.

Easing pessimism among Japan’s manufacturers has much to do with the outlook for China, where $586 billion in government spending on construction projects and consumer incentives is feeding demand for Japan’s heavy equipment, cars and materials. The World Bank last week raised its growth forecast for China to 7.2 percent from a March estimate of 6.5 percent.

Stimulus Fillip

Japanese companies are already benefiting. Nissan Motor Co.’s sales to China rose 37 percent in April from a year earlier. About two-thirds of the cars the company sells in China are eligible for a government subsidy that halves the sales tax on vehicles with smaller engines.

Japan’s own stimulus measures -- 25 trillion yen ($260 billion) pledged since October -- have started to take hold. Sales of electronics are by up 18 percent since the government last month introduced a program to encourage consumers to buy eco-friendly products, according to Tokyo-based researcher Gfk Marketing Service Japan Ltd.

Industrial production rose at the fastest pace in 56 years in April as companies replenished stockpiles they managed to run down during the worst of the export collapse. The rebound in output prompted the Bank of Japan and the government to raise their assessments of the economy in the past two months.

Smaller Economy

Still, two quarters of record contractions in gross domestic product have shrunk the economy down to its 2003 size. Exports and production have fallen by more than a third from last year’s levels.

That’s putting pressure on managers to cut jobs and forcing companies to slash investment, spending that would normally trickle down to the smaller business that make up 70 percent of the economy. A survey published this month by the Nikkei newspaper showed companies, saddled with equipment they no longer need, plan to cut capital spending by an unprecedented 15.9 percent this business year.

“Consumer spending will probably stay relatively solid in coming months, supported by stimulus measures,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “But it’s highly likely to weaken as the wage and labor market deteriorate further.”

The unemployment rate rose to a five-year high of 5 percent in April and economists surveyed by Bloomberg expect it to climb to a record 5.8 percent next year. About two work seekers are competing for a single spot, the most severe job shortage on record.

Today’s business confidence report offers a hint of the results likely in the Bank of Japan’s Tankan survey due July 1. That report, the nation’s most closely watched gauge of corporate confidence, will show sentiment among large manufacturers improving from March’s record low, according to economists surveyed.

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net