Japanese Businesses Plan More Investment Even as Sentiment Slips

(Bloomberg) -- Japan's large companies plan to increase investment this year, even as a stronger yen may be undercutting their confidence, which slipped a little from the highest level in more than a decade.

Key Takeaways

Despite a stronger yen, which cuts into profits, large companies said they plan to increase capital spending more than economists forecast. The yen was the second-biggest gainer among major currencies in the first quarter and its continued appreciation could damp pay raises this year, hurting the Bank of Japan's efforts to end deflation.

Economist Views

• “I think this is actually a pretty good Tankan result with a lot of positives,” Izumi Devalier, head of Japan economics at Bank of America Merrill Lynch, said on Bloomberg TV after the release.
• Manufacturers faced a bit of yen appreciation and there was some protectionist noises coming out of Washington, so it's not surprising that they are not feeling as optimistic as they did three months ago, she said.
• The investment forecast is “impressive” and unless some downside risks materialize, it's likely to be revised up over the coming quarters, she said.
• “Japanese companies have become a bit cautious, and the strong yen and weakened momentum in production are contributing to that,” said Takashi Shiono, an economist at Credit Suisse Group. “They are still looking at the yen being weaker than the current level so I think there is room for the sentiment to decline further.”
• Given the cautiousness, it's hard to imagine we'll have strong wage growth, Shiono said.

Other Details

• Large manufacturers forecast the yen will trade at 109.66 per dollar in the fiscal year ending in March 2019.
• Among small companies, manufacturers' sentiment was unchanged at 15, while that of service firms rose to 10 from 9.
• The Tankan was conducted from Feb. 26 to Mar. 30, surveyed 10,020 companies.

--With assistance from Jason Clenfield Yoshiaki Nohara and Connor Cislo

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net.

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, James Mayger, Jason Clenfield

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