Japan's corporate sentiment improves as profits rise on weak yen

[TOKYO] Confidence among Japan's large manufacturers improved for a second consecutive quarter in the first three months of the year as a weaker yen helped profits rise to a record.

Sentiment among large manufacturers rose to 12 from 10 three months ago (forecast 14), according to the Tankan survey released by the Bank of Japan on Monday.

The outlook among the manufacturers increased to 11 from 8 in December (forecast 13).

Large companies across all industries plan to raise fixed investment by 0.6 per cent for the year starting this month, the survey found.

Rising profits and improving sentiment don't always result in capital spending in Japan, where a record corporate cash pile has confounded economists and policy makers.

A sustainable recovery depends on companies putting those profits into investment and wages, something they've been reluctant to do in recent years. Early results from this year's spring wage negotiations between Japan's biggest employers and unions suggest pay increases will remain small this year.

The Tankan gauges of sentiment confirm that Japanese exporters have benefited from growing strength in overseas economies, Koichi Fujishiro, an economist at Dai-ichi Life Research Institute, said in a note before the release.

While sentiment is on the rise, the overall outlook will deteriorate a bit due to lingering uncertainty over the policies of the Trump administration, Koya Miyamae, senior economist at SMBC Nikko Securities, wrote in a note before the results were released.

Large manufacturers forecast the yen will trade at 108.43 per US dollar for the year ending in March 2018. The forecast for last fiscal year was 104.90 in the report three months ago. The yen was at 111.27 at 8:55am on Monday in Tokyo.

BLOOMBERG