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December 15, 2009

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Home » Business » Economy

Corporate spending a problem for Japan

JAPANESE companies are gaining confidence in the global recovery, but an uncertain outlook at home is fueling a worrisome retreat in corporate spending, a key central bank report showed yesterday.

In the Bank of Japan's closely watched "tankan" quarterly survey of business sentiment, the main index for large manufacturers stood at minus 24, a 9 point improvement from three months ago. The figure represents the percentage of companies saying business conditions are good minus those saying conditions are unfavorable.

The result beat Kyodo news agency's average market forecast of minus 27 and reflects how robust Asian demand is bolstering the world's second-biggest economy. The fine print, however, paints a less encouraging picture.

Amid deflation and a strong yen, companies remain reluctant to invest in factories, equipment or workers.

Major manufacturers and non-manufacturers plan deeper capital spending cuts of 13.8 percent this fiscal year through March 2010, according to the tankan. They say they still have too many workers and capacity. And while big companies expect sentiment to improve next quarter, small and medium-size firms forecast deterioration amid a frail domestic economy.

"Strong Asian demand is driving the Japanese economy through exports, and larger manufacturers are to some extent benefiting from that," said Masayuki Kichikawa, chief economist at Bank of America Merrill Lynch in Tokyo. "But today's numbers confirmed a divergence in business sentiment."


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