Japanese business sentiment improved in the first three months of 2013 and households’ inflation expectations hit a 4-1/2 year high, central bank surveys showed, suggesting that Prime Minister Shinzo Abe’s determined push for monetary stimulus is thawing Japan’s long-held perceptions of intractable deflation.
The surveys – the first since Abe took office in December – will help new Bank of Japan Governor Haruhiko Kuroda argue for bold, experimental steps to boost sentiment when he chairs his first policy-setting meeting later this week.
The mood at big Japanese manufacturers improved in the three months of this year after deteriorating for two straight quarters, according to the central bank’s closely watched quarterly “tankan” survey for March.
A separate BOJ survey showed nearly three-quarters of households expect prices to rise a year from now, the highest ratio since 2008, suggesting that expectations of aggressive stimulus are translating into inflation expectations.
The surveys, released on Monday, come ahead of a BOJ policy meeting that is expected to start pulling out all the stops to push up prices, initially by buying longer-dated bonds and setting a new target focusing on the size of its balance sheet. The two-day meeting ends on Thursday.
“The governor is expected to make good on his promise of pursuing bold monetary easing,” said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
“The tankan result reflected companies’ expectations that a weaker yen and policy steps pursued by the government will have a positive impact on the economy,” he said.
Abe’s ambitious push for hefty stimulus spending and monetary easing by the central bank – dubbed “Abenomics” – has offered some relief to the export-reliant economy by helping to weaken the yen and bolster share prices.
The tankan’s index gauging big manufacturers’ sentiment rose 4 points, to minus 8, roughly in line with a median market forecast of minus 7. They expect business conditions to improve in the three months ahead, signalling that prospects for the world’s third-largest economy are turning up.
The tankan report, a key touchstone for BOJ policy makers, underscores the view that Japan’s economy is gradually bouncing back from last year’s recession and headed for a moderate recovery driven in part by a pickup in global demand.
In the report, companies also saw prices of their goods and services falling less than they were three months ago, while an index of views on sales price moves improved for both manufacturers and non-manufacturers.
Abenomics may also be changing the way households see prices ahead. A quarterly BOJ survey separate from the tankan showed the ratio of households that expect prices to rise a year from now rose to 74.2 per cent in March from 53.0 per cent in December, the highest level since September 2008.
The ratio of households expecting their earnings to rise a year from now increased to 62.6 per cent from 55.1 per cent in December, suggesting that Abe’s policies are starting to change persistent expectations that wage growth will remain stagnant.
In a sign that the recovery is broadening, the tankan’s sentiment index for big non-manufacturers improved 2 points to plus 6. The index for the three months to June was at plus 9.
Big manufacturers expect the dollar to average ¥85.22 in the current fiscal year from April, up sharply from their estimate of ¥80.56 for the previous year ended in March. That is still much lower than recent levels around ¥94 to the dollar, suggesting that exporters may see further increases in revenue if current yen levels hold.
But some analysts warn against reading too much into the surveys, saying that Abe’s policies have only started to lift sentiment and have yet to boost economic activity itself.
Big firms plan to cut capital expenditure by 2.0 per cent in the current business year, the tankan showed, suggesting that the positive mood needs to be sustained longer before companies are convinced to boost spending.
The tankan’s sentiment indexes are derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A negative reading means pessimists outnumbered optimists.
Analysts expect the world’s third-largest economy to have grown 1.0 per cent in the year that just ended in March, and to expand 2.2 per cent in the current fiscal year.