Negative rates get thumbs down from corporate Japan
Published 22/04/2016 | 02:30
Most Japan companies expect to maintain or see a small increase in operating profits this financial year, a Reuters poll showed, shrugging off a sharp rise in the yen due to an expected pick-up in consumer spending and business investment.
Most Japanese firms think a Donald Trump presidency would harm the Japan-US security alliance and make the United States a less attractive place to invest, the same poll showed, in a further sign of international angst about his candidacy.
The Republican frontrunner, known for his unpredictable style and fiery rhetoric, would also cause bilateral trade to shrink if he became president, a majority of respondents said.
At home, the Reuters Corporate Survey also found that companies are against any further expansion of the Bank of Japan's negative interest rate policy, suggesting some disillusionment with Prime Minister Shinzo Abe's efforts to reflate the economy, known as "Abenomics".
Written comments from companies participating in the survey, conducted April 1-15 for Reuters by Nikkei Research, suggest optimism about strengthening demand as well as a rosier outlook for some sectors such as tourism and construction ahead of the 2020 Tokyo Olympics.
"Our customers' manufacturing facilities are old and we expect companies to continue with capital expenditure to replace these facilities," a manager at an electronic equipment maker wrote. "You could say things are looking up."
Thirty-nine percent of companies expect operating profit to be flat in the financial year that started April 1, while 30pc see a slight rise and another 2pc see a considerable increase. The remainder see declines in earnings.
Around 510 big and mid-size firms were polled, with managers responding on condition of anonymity. Of the firms surveyed, 245 responded to questions about operating profit.
The outlook comes despite a sharp 10pc appreciation in the yen this year to around 109 per dollar, near a 17-month high, as investors seek the currency as a safe haven due to increasing worries about falling commodities and China's slowing economy. A stronger yen eats into earnings income for Japan Inc's many exporters.
"We cannot ignore the impact that currency moves have on profits, but compared to a few years ago when the yen was at 70 or 80 per dollar, Japanese companies are more resilient," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
The poll was conducted before a series of earthquakes struck over the weekend in Kumamoto, an important manufacturing hub in southern Japan. Some economists say Japan is likely to quickly shake off the impact, as firms are already starting to resume production in the area.
After contracting in the last quarter of the year, Japan's economy is forecast to have narrowly avoided a recession in the January-March period.
The central bank stunned investors in January with its adoption of a negative 0.1pc interest rate. (Reuters)