The results of the quarterly Business Outlook Survey by the Ministry of Finance and Cabinet Office conducted on Feb. 15 and released Wednesday. It covered 15,643 companies capitalized at Y10 million or over, of which 12,557 replied. The business survey index (BSI) is measured by the number of companies pointing to improvement in their business environment minus those reporting deterioration.
FACTORS: The sentiment index for major Japanese firms rose to a record +12.7 points in the January-March quarter from +8.3 points in October-December 2013 as the weaker yen has boosted exporter profits and the modest economic recovery is supported by high demand for cars and consumer electronics before the April sales tax hike. The Q1 manufacturers’ sentiment was propped up by makers of production machinery as well as cars and car parts while the information and communication industry and retailers pushed up non-manufacturers’ confidence.
The BSI is forecast to fall to -9.8 points in April-June due to the tax increase but is projected to rebound to +8.3 points in July-September.
TAKEAWAY: The survey showed that the Japanese economy is likely to continue recovering except in the second quarter. A MOF official said the fall in demand expected to be caused by the tax hike will be temporary. The survey also indicated that major manufacturers’ sentiment index will improve in March from +16 in December before slipping in June in the Bank of Japan’s Tankan quarterly business survey due out on April 1.
The survey results support the BOJ’s view that the pick-up in business fixed investment “has become increasingly evident as corporate profits have improved.” The data showed capital investment is expected to fall 5.1% in fiscal 2014 from the previous year, but that would be still better than the 6.5% fall projected a year before for fiscal 2013. Companies tend to present conservative plans in the Q1 survey conducted in mid-February every year and revise them up sharply in the following survey in mid-May. Last year, the 6.5% drop projected in Q1 was revised up to a 7.2% rise in Q2.