Japanese business sentiment recovered in the third quarter from the post-earthquake shock, but a strong yen and Europe's debt crisis are making companies cautious about the outlook, the Bank of Japan's quarterly tankan survey showed on Monday. Japan's domestic sales of new cars, trucks and buses saw their first rise in 13 months in September, reflecting the industry's rebound from the huge disruption sparked by Japan's quake and tsunami.
--- Auto sales rises first time in 13 months
Sales in September grew 1.7 percent from a year earlier to 313,790 vehicles, the Japan Automobile Dealers Association said Monday. The figures do not include sales of mini vehicles - which have an engine capacity of 660 cc or less - and reflect a low basis of comparison from the same period a year earlier, when state subsidies for the purchase of environmentally friendly vehicles ended.
Large manufacturers expect a further improvement in business conditions in the next three months, according to the September survey, though it is seen as marginal in an recovery in the Japanese economy that is increasingly tentative. Europe's debt crisis will keep the Bank of Japan edgy but the central bank is expected to refrain from easing monetary policy in a two-day review ending on Friday unless there is market turmoil seen as threatening Japan's recovery.
The tankan roughly matches economic cycles so the central bank closely watches the survey results in gauging the economy's underlying trend in guiding monetary policy. The BoJ could, however, come under pressure to increase asset purchases further to support growth in the coming months, as the government has been slow to compile a spending package for the bulk of reconstruction from the March 11 disaster.
"The headline figures indicate a moderate recovery at manufacturers. But if you look carefully you can see the heavy burden of a higher yen, and their profits are under pressure," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. "Additional easing measures will be taken if the dollar falls below, say, 75 yen. Today's data reinforces views that the government and the Bank of Japan will take co-ordinated steps to tackle any excessive appreciation of the yen."
The headline index for big manufacturers' sentiment matched market forecasts, improving to plus 2 in September from minus 9 in June, when sentiment tumbled in the aftermath of the disaster, which ravaged north-east Japan. Big non-manufacturers' sentiment improved by 6 points to plus 1 in September, roughly in line with the median forecast of plus 2. But they saw no further improvement in the next quarter, underscoring weakness in domestic demand.
The world's No 3 economy probably emerged from recession as it recovers from a slump after the March disaster. But growth remains modest with analysts expecting a bigger slowdown in the final months of the year than previously thought. Worries about a global recession, Europe's debt crisis and persistent yen strength have cast doubt on the central bank's view that external demand can help Japan's economy recover toward the end of this year.