Japanese manufacturing mood turns positive

Tokyo: Japanese manufacturers’ sentiment rose for a sixth straight month in May, turning positive for the first time in a year, a Reuters poll showed, and providing further signs that Prime Minister Shinzo Abe’s expansionary policy has generated more confidence in the economy.

Increasing optimism among manufacturers was largely driven by exporting sectors, including electric and precision machinery, that have benefited from the weak yen.

The mood in the service sector also picked up and was seen rising further as consumers drew confidence, in part, from a surge in share prices.

The manufacturers’ sentiment index rose by 11 points to plus 7 in the Reuters Tankan for May, logging the first positive figure since May 2012 and its highest reading since September 2011. It is expected to reach plus 22 in August.

The monthly poll closely correlates with the central bank’s key Tankan quarterly company survey.

The poll comes days after government data showed the world’s third-biggest economy grew a faster-than-expected 0.9 per cent in January-March from the previous quarter thanks to a big gain in private consumption and a pick-up in exports.

“A weak yen could have a big impact on our earnings, but its effects have not yet played out much in real demand,” one electric machinery maker said in the Reuters survey.

Since Abe unveiled his strategy in November to end two decades of economic stagnation, prior to his election the following month, the yen has fallen sharply and share prices have rocketed by 70 per cent .

Supporting the view that the benefits to the economy have been largely psychological so far, some companies complained of a lack of real demand, suggesting that it may take some time to see a fully fledged recovery take hold.

A precision machinery maker said: “Economic recovery is felt due to a weak yen caused by Abenomics monetary policy. But it has not led orders to recover and the situation remains tough.”

Other manufacturers complained that higher import prices were squeezing profits as they struggle to pass on higher costs to their customers.

The Reuters Tankan showed the index for service sector firms rose seven points to plus 19 in May, marking its highest reading since October 2007. It is seen reaching plus 28 in August led by sectors including real estate/construction and retailers.

The survey of 400 midsize and big firms, taken between April 26 and May 15, drew responses from 259 companies. Index readings are derived by subtracting the percentage of pessimistic responses from optimistic ones.