Japan’s Business Confidence, Service Demand Rebound

June 22 (Bloomberg) -- Japanese business confidence improved for the first time in three quarters and demand for services rose, adding to signs the country’s worst postwar recession is easing.

Sentiment among large manufacturers increased to minus 13.2 points compared with a record low of minus 66 three months ago, a government survey showed today. The tertiary index of money spent on services from phone calls to dining out climbed 2.2 percent in April from March, the Trade Ministry said.

A rebound in production as companies replace stockpiles will help the world’s second-largest economy expand for the first time in a year this quarter, economists say. Even so, Bank of Japan Governor Masaaki Shirakawa is concerned that demand may not pick up enough to sustain a recovery once $2.2 trillion in worldwide stimulus measures fades.

“It’s becoming clearer that the economy has already hit bottom,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “But the rebound will probably be lackluster in the absence of a solid recovery in profits, capital spending and consumption.”

The yen traded at 95.96 per dollar as of 11:39 a.m. in Tokyo from 96.08 before the reports were published. The Nikkei 225 Stock Average rose 0.1 percent, and has advanced 39 percent since dropping to a 26-year low on March 10.

Biggest Gain

The gain in sentiment at large manufacturers was the biggest since the Cabinet Office and Finance Ministry began the survey in 2004. Confidence at all big companies improved to minus 22.4 from minus 51.3. A negative reading means pessimists outnumber optimists.

The report offers a hint of the results likely in the Bank of Japan’s Tankan survey due July 1. The nation’s most closely watched gauge of corporate confidence will show sentiment among large manufacturers improving to minus 43 points from March’s record low of minus 58, according to the median estimate of 18 economists surveyed by Bloomberg.

China’s 4 trillion yuan ($586 billion) in government spending is boosting demand for Japanese heavy equipment and cars. Nissan Motor Co.’s sales to China rose 37 percent in April from a year earlier, buoyed by a government subsidy that halves the consumption tax on vehicles with smaller engines.

Japan’s own stimulus measures -- 25 trillion yen ($260 billion) pledged since October -- have helped lift consumer confidence to a 14-month high. Sales of electronics are by up 18 percent since the government last month introduced a program to encourage consumers to buy eco-friendly products, according to Tokyo-based researcher Gfk Marketing Service Japan Ltd.

BOJ, Government

Industrial production rose at the fastest pace in 56 years in April as companies replenished stockpiles they managed to run down during the worst of the export collapse. The rebound prompted the Bank of Japan and the government to raise their assessments of the economy in each of the past two months.

Gross domestic product will grow an annualized 1.5 percent this quarter, according to the median estimate of 11 economists. GDP contracted a record 14.2 percent in the previous period.

Governor Shirakawa said last week that he’s “cautious” about the economic outlook because the pickup in demand may be temporary. Exports and production, while improving on a month- on-month basis, are about a third lower than last year’s levels.

That’s putting pressure on managers to cut jobs and slash investment, spending that would normally trickle down to the smaller businesses that make up 70 percent of the economy. Companies plan to cut capital spending by an unprecedented 15.9 percent this business year, according to a survey published this month by the Nikkei newspaper.

Worsening Job Market

“Consumer spending will probably stay relatively solid in coming months, supported by stimulus measures,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “But it’s highly likely to weaken as the wage and labor market deteriorate further.”

The unemployment rate rose to a five-year high of 5 percent in April and economists surveyed by Bloomberg expect it to climb to a record 5.8 percent next year. Jobs are scarce: about two work seekers are competing for a single spot, the most severe shortage on record.