By Stanley White and Tetsushi Kajimoto
TOKYO, April 1 (Reuters) - Japanese business morale improved in March for the the fourth consecutive quarter, the Bank of Japan's tankan survey showed, but the economic recovery could struggle to pick up pace as companies were cautious about corporate spending due to excess capacity.
Companies also indicated they still have excess workers, suggesting domestic demand could remain tepid due to falling wages.
Expectations for rising raw materials costs and falling retail prices also show how deflationary pressure is threatening profits as companies cannot easily pass those higher costs on to consumers.
The improvement in the headline business sentiment number could make the argument for additional monetary easing by the BOJ seem less urgent.
But Japan's government cannot afford to worsen the country's debt burden much more, so it is seen likely to lean on the central bank to support the economy as its approval ratings slump before an election expected in July.
'Looking at business confidence alone, the Bank of Japan may be right in saying that the economy is picking up. But the level of economic activity itself is still low,' said Takeshi Minami, chief economist at Norinchukin Research Institute.
'The BOJ has said its biggest priority is to pull Japan out of deflation. Even if business confidence improves, the BOJ is likely to remain under pressure for further easing unless prices start rising.'
The headline index for big manufacturers' sentiment improved to minus 14 in March from minus 25 in December. The median estimate for March was minus 13.
The index for June was seen at minus 8, showing firms expect conditions to improve.
Big firms plan to cut capital spending, a key driver of the economy, by 0.4 percent in the financial year to March 2011, against the median forecast for a 0.5 percent fall.
Japanese companies tend to increase their capital spending plans as the fiscal year progresses, but any gains could be limited as large manufacturers have been slow to make use of excess capacity.
(Editing by Michael Watson)
((stanley.white@thomsonreuters.com; +81 3 6441 1984; Reuters Messaging: stanley.white.reuters.com@reuters.net)) Keywords: JAPAN ECONOMY/ (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
TOKYO, April 1 (Reuters) - Japanese business morale improved in March for the the fourth consecutive quarter, the Bank of Japan's tankan survey showed, but the economic recovery could struggle to pick up pace as companies were cautious about corporate spending due to excess capacity.
Companies also indicated they still have excess workers, suggesting domestic demand could remain tepid due to falling wages.
Expectations for rising raw materials costs and falling retail prices also show how deflationary pressure is threatening profits as companies cannot easily pass those higher costs on to consumers.
The improvement in the headline business sentiment number could make the argument for additional monetary easing by the BOJ seem less urgent.
But Japan's government cannot afford to worsen the country's debt burden much more, so it is seen likely to lean on the central bank to support the economy as its approval ratings slump before an election expected in July.
'Looking at business confidence alone, the Bank of Japan may be right in saying that the economy is picking up. But the level of economic activity itself is still low,' said Takeshi Minami, chief economist at Norinchukin Research Institute.
'The BOJ has said its biggest priority is to pull Japan out of deflation. Even if business confidence improves, the BOJ is likely to remain under pressure for further easing unless prices start rising.'
The headline index for big manufacturers' sentiment improved to minus 14 in March from minus 25 in December. The median estimate for March was minus 13.
The index for June was seen at minus 8, showing firms expect conditions to improve.
Big firms plan to cut capital spending, a key driver of the economy, by 0.4 percent in the financial year to March 2011, against the median forecast for a 0.5 percent fall.
Japanese companies tend to increase their capital spending plans as the fiscal year progresses, but any gains could be limited as large manufacturers have been slow to make use of excess capacity.
(Editing by Michael Watson)
((stanley.white@thomsonreuters.com; +81 3 6441 1984; Reuters Messaging: stanley.white.reuters.com@reuters.net)) Keywords: JAPAN ECONOMY/ (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.