Japan Manufacturers See Rebound as Yen Lightens Outlook: Economy

By Andy Sharp & Keiko Ujikane 

Japan’s manufacturers predict a rebound in production this month after the deepest slide since the aftermath of the March 2011 earthquake, with the central bank poised to step up monetary stimulus next week.

Industrial output will rise 1 percent in March after a 0.1 percent on-month drop in February, according to forecasts submitted for a Trade Ministry report released in Tokyo today. Production tumbled 11 percent in February from a year earlier, the steepest since April 2011, reflecting last year’s recession.    A Bank of Japan (8301) survey April 1 also may show a brightening outlook as Prime Minister Shinzo Abe seeks to reflate the world’s third-largest economy, with the Tankan large manufacturers’ index set to rebound by the most since 2011, according to economists surveyed by Bloomberg News. Abe needs companies to boost investment and wages as a complement to new BOJ Governor Haruhiko Kuroda’s campaign to end deflation.

“Japan’s economy is going to improve in the coming months due to a weak yen and a pickup in exports,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, a top-three forecaster of the economy last quarter in Bloomberg News surveys. “The Bank of Japan will do its best to live up to market expectations by boosting monetary stimulus and that will support corporate and household sentiment.”

The yen rose 1 percent to 94.06 per dollar as of 3:23 p.m. in Tokyo. The currency is poised for its longest string of monthly losses in more than a decade on Abe’s pledges to revive the economy. The Nikkei 225 Stock Average (NKY) closed 0.5 percent higher, capping its best back-to-back quarterly performance since 1972.

Korean Slump

South Korea’s industrial production unexpectedly fell in February, data showed today, signaling that an economic recovery may be slower than expected and bolstering the case for a fiscal boost after Finance Minister Hyun Oh Seok announced plans for stimulus yesterday.

The yen’s fall has drawn criticism from Korean firms, with carmaker Kia Motors Corp (000270). saying yesterday the currency is becoming a “weapon” for Japanese competitiveness.

While companies in the Nikkei index showed a more than 50 percent decline in aggregate net income in the four years through 2012, according to data compiled by Bloomberg, firms including Toyota Motor Corp (7203). have raised profit estimates for the fiscal year starting next month.

Toyota agreed this month to pay its employees in Japan the biggest bonus in five years and Kubota Corp (6326)., a tractor maker, predicts record sales.

Tankan Report

The Tankan large manufacturers’ index will rise to minus seven in March from minus 12 in December, according to the median forecast of 22 economists surveyed by Bloomberg News. Theoutlook index for large manufacturers, a gauge of how they see conditions in three months, may increase to plus one from minus 10. A positive reading means optimists outnumber pessimists.

Improving sentiment may help Kuroda achieve a 2 percent inflation target as he prepares to unleash stimulus at his first policy-setting meeting on April 3-4. The new central bank chief, who has said that influencing expectations is crucial to ending deflation, told lawmakers yesterday that he would push for more easing until the target is achieved.

Japan’s consumer prices excluding fresh food dropped 0.3 percent in February, data showed today, failing to rise for the 10th month. Barclays Plc said in a research report today that the result was due in part to “base effects linked to last year’s rise in TV prices” and predicts the gauge will turn positive from around May.

Still Struggling

Despite the improved manufacturing outlook, the output fall in February and a predicted negative reading on the Tankan’s main index may reflect lingering caution, with Honda Motor Co. on Jan. 31 forecasting lower net income for this fiscal year, based on an exchange rate of 81 yen per dollar.

“Sentiment is recovering and will likely gain momentum, but businesses still aren’t confident enough,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo and a former central bank official. “Carmakers are looking good on the weaker yen, while others, such as firms in the electronics industry, are struggling with weak domestic demand.”

Fujitsu Ltd (6702)., which makes semiconductors and computers, said in February it would eliminate 5,000 jobs.

Production of electronic parts and devices led the drop in output in February, today’s data showed. The Trade Ministry said that production of memory chips and displays for smartphones fell due to slower demand and the Lunar New Year holiday in China.

Global Economy

In other economic releases today, France may report that producer prices rose from a year earlier at a slower pace in February. The index gained 1 percent after a 1.4 percent increase in January, based on the median estimate of seven analysts in a Bloomberg News survey.

A U.S. Commerce Department report will probably show consumer spending increased 0.6 percent in February, the most in five months, according to the median of 78 estimates.

The yen’s weakness is yet to significantly boost Japanese exports, which fell in eight of nine months through February. The import bill has swelled, adding to cost pressures for companies.

More easing by the BOJ may help to push the yen lower, with analysts surveyed by Bloomberg News predicting the currency will weaken to 97 per dollar by the end of the year. Kuroda said this week the BOJ will consider combining its monthly bond purchases and asset purchase fund, as well as buying more debt with longer maturities and scrapping a rule that limits the scale of bond buying. He has also suggested bringing forward open-ended asset purchases planned for 2014.

To contact the reporters on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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