A weaker yen and soaring Japanese stock market have failed to dent Japanese exporters' pessimism about their outlook and profits, a key survey of business conditions showed 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, was minus 4 in March, the same reading as reported in December. Analysts had forecast the index would improve to minus 1.
The much-watched survey also showed that executives expect the index to remain negative at minus 3 in June, due in part to expectations of renewed strength in the yen. The Japanese currency has this year fallen more than 7 per cent against the US dollar, while all other main currencies have gained against the greenback. That has helped propel the Nikkei 225 stock average to a 20 per cent rise, putting the Japanese market among the world's 10 best performers.
But executives at large manufacturers forecast the yen will gain about 6 per cent from its present level to average ¥78.14 per dollar in the fiscal year beginning in April. That is well below the 82 yen break-even point at which exporters said they could remain profitable, in a government survey released in February.
Sony, Japan's largest electronics exporter, has forecast a fourth consecutive annual loss in the year to March, while Panasonic and Sharp predict record annual losses.
Other explanations for the gloomy assessments include "uncertainty over foreign, particularly Chinese demand", Naohiko Baba, economist at Goldman Sachs, wrote in a note to clients. Takehiro Sato, economist at Morgan Stanley MUFG Securities, noted that conditions were particularly poor in steel, nonferrous metals and chemicals, reflecting "higher energy prices upstream".
The Tankan survey of almost 11,000 companies, which was conducted between the last week of February and the end of March, has had a significant bearing on the BoJ's monetary policy in the past.
In the two hours following the release on Monday morning the yen weakened almost 0.7 per cent against the dollar, as traders bet the BoJ would take further easing steps. The central bank's Monetary Policy Committee meets twice later this month.
One reason for the BoJ to hold off further easing measures, however, is the relative buoyancy of domestically focused companies. The overall business conditions index for large non-manufacturers improved to 5 from 4 in December, the best reading since mid-2008. At large communications companies, for example - the likes of NTT DoCoMo, KDDI and SoftBank - the index was 52, the highest figure since 1988.
"Non-manufacturers' profitability has recovered impressively," said Takuji Okubo, chief Japan economist at Société Générale in Tokyo. "This is a story of external weakness versus domestic resilience."