Japan’s business executives have become more confident for the first time since 2006, supporting hopes the worst recession since World War II is easing.
But the rebound was smaller than expected, suggesting that the world’s second largest economy faces a rocky road to recovery, analysts said.
The sentiment index for major manufacturers rose to minus 48 in June from a record low of minus 58 in March, the Bank of Japan’s quarterly Tankan survey showed.
It was the first improvement since December 2006 and the sharpest increase since June 2002, when the index jumped 20 points.
The results, however, fell short of market forecasts for a figure of about minus 43.
Macquarie Securities economist Richard Jerram said the survey was “a bit on the disappointing side.”
Compared with other confidence surveys in Japan, the main Tankan indices have been slow to recover, he noted.
The confidence index for major non-manufacturers improved only slightly, to minus 29, from minus 31 three months earlier.
A negative figure suggests the mood remains gloomy overall. The index measures the percentage of firms that think business conditions are good minus those that believe they are bad.
Analysts say Japan is probably through the worst of its recession.
But there are worries that even if the current recession ends, the economy could start contracting again once the effects of economic stimulus measures fade, entering a so-called “double-dip” recession.
“We cannot help being concerned about the risks of a double-dip in the Japanese economy,” said Naoki Murakami, chief economist at Monex Securities.
The Tankan found that big manufacturers expect sentiment to continue to improve, forecasting a confidence rating of minus 30 for September.
But they have downgraded their profit outlook, forecasting a 39.5 percent drop in pre-tax earnings for the current financial year to March. Three months earlier they had expected a 19.7 percent decline.
Before the current economic downturn began, Japan’s corporate sector had been a key driver of a recovery in Asia’s largest economy following the recessions of the 1990s.
Now major exporters, many of which are deep in the red, are cutting back their investment in an effort to ride out the recession.
Large firms across all sectors plan to trim their investment in factories and equipment by 9.4 percent on average for the current fiscal year, the Tankan results showed.
Asia’s biggest economy shrank at an annualised pace of 14.2 percent in the first quarter of 2009, the worst performance on record.
Experts say a full-fledged recovery is unlikely in Japan until demand picks up in major overseas markets such as the United States and Europe.
While hopes are mounting that Japan’s economy has come through the worst of its export and production slump, figures released Tuesday showed the unemployment rate rose to a more than five-year high of 5.2 percent in May.
The government has announced a series of economic stimulus packages, including cash handouts for households and incentives to buy fuel-efficient cars.