Japan: Boosting Capital Spending

[HenryTo]

Quote: "Large companies in all industries plan to raise capital spending by 11.6 percent on average in the fiscal year to March 2007, the strongest rise in a June Tankan survey since 1990."

Given the cash levels at U.S. corporations and the relatively low unemployment rate, look for U.S. companies to boost capital spending as well in the coming months. This is bullish for companies such as MSFT, INTC, etc.
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Upbeat Japan business survey cements rate rise expectations

Monday, July 3, 2006

Major Japanese companies plan to boost spending on new plants and equipment as they grow more confident about the economic outlook, according to a survey that raised expectations of an end to zero interest rates as soon as next week.

Sentiment among large Japanese manufacturers rose to 21 in June from 20 in March despite recent falls on global stock markets, the Bank of Japan's quarterly "Tankan" survey showed Monday.

The figure matched market predictions but was slightly below the 22 forecast for large manufacturers in June. A positive reading means that confident firms outweigh pessimistic ones.

Large companies in all industries plan to raise capital spending by 11.6 percent on average in the fiscal year to March 2007, the strongest rise in a June Tankan survey since 1990.

All companies combined covered by the poll have on average increased their capital expenditure budget for the current business year by 6.2 percent.

"There's nothing in here to persuade the BoJ to hold off on interest rate increases," said Richard Jerram, economist at Macquarie Securities, adding the central bank seemed likely to make a move on Friday of next week.

"The overall numbers show a very solid economy with no great feeling of excess labour or capacity," he added.

The survey of almost 10,000 companies also showed the index for major non-manufacturers improving to 20 in June from 18 in March.

"We see the 'feel good' factor of the recovery as broadening out from manufacturers into non-manufacturers," said Jesper Koll, chief economist for Japan at Merrill Lynch.

"We think the Tankan is strong enough to give a green light for a BoJ move on July 14," he added.

One factor clouding the outlook for monetary policy is calls for the resignation of Bank of Japan governor Toshihiko Fukui over his links to a scandal-tainted investment fund.

The central bank is also under pressure from the government to maintain zero interest rates for now.

Chief Cabinet Secretary Shinzo Abe urged the Bank of Japan Monday to refrain from raising interest rates to give the economy more time to recover.

The big manufacturers' index has picked up from a low of minus 38 four years ago as the world's second-largest economy recovers from over a decade in the doldrums, even if it is below a 13-year high of 26 reached in September 2004.

Looking ahead, the index for big manufacturers is seen rising one point to 22 in September, with large non-manufacturers also up one point to 21.

The report showed mid-sized firms grew slightly more upbeat while small companies remained cautious.

The employment conditions index at large firms, which measures the number of companies that believe they have excess workers less those that believe they have too few, stood at minus 7, the lowest level since the May 1992.

On a less upbeat note, companies of all sizes see their combined current profit rising just 1.5 percent in the financial year to March, although analysts said this figure was likely to prove excessively cautious.

Investors responded positively to the report with the benchmark Nikkei-225 share index rising 66.44 points or 0.43 percent to 15,571.62 by the close.

The yen initially jumped in response to the survey results but failed to sustain the advance.

The dollar was at 114.47 yen in late Tokyo morning trade, up from 114.44 in New York late Friday and off a low of 114.09 soon after the Tankan's release. — AFP