Manufacturing is one of Japan’s biggest industries and driver of economic growth Japanese manufacturers were optimistic about the country’s economic growth before the earthquake and tsunami struck, the latest Tankan survey shows.
According to the survey, the large manufacturers index stood at plus 6 for the first three months of the year, one point better than the previous quarter.
A positive reading indicates the country’s economy was rebounding.
The survey is conducted by the Bank of Japan.
However, analysts warn that survey does not show the full impact of the recent devastation as the central bank had collected majority of responses before the earthquake and tsunami hit the country on 11 March.
“With 72% of companies replying before the earthquake, its impact is barely seen in this survey, so its results, and forecasts for June are likely to prove wildly over-optimistic,” said George Worthington of IFR Markets.
“If the dollar averages above 85 yen, that would be a plus for exporters”
Ayako Sera Sumitomo Trust & Banking
The extent of damage to the country’s infrastructure has been huge.
Some of Japan’s biggest companies halted production at their factories in wake of power cuts and shortage of parts.
Analysts say that as the full impact of the damage caused to infrastructure and supply chain becomes clear, there is likely to be a dip in the manufacturers’ confidence in the short term.
“IFR would expect a sharp drop back into the red, meaning pessimists outweigh optimists, particularly if power cuts continue and the rebuilding effort looks likely to be very drawn out,” Mr Worthington said.
The index represents the difference between the percentage of respondents who say that business conditions in Japan are good and those who say they are poor.
Analysts say that while the pace and efficiency of recovery will have an impact on the business sentiment in the country, a big role will also be played by how its currency moves.
Japan’s economic growth has been powered by its export sector.
The movement in yen’s value has a big impact on the success of its biggest exporters.
A stronger yen not only makes Japanese goods more expensive to the buyers but also hurts the companies’ profits when they repatriate their foreign earnings back home.
The yen hit record highs against the US dollar in the aftermath of the quake prompting a joint action from the G7 nations in the currency markets.
Analysts say that given the current scenario the yen is likely to remain competitive.
“Companies predict the dollar will average 84.20 yen this fiscal year, so the key is whether it rises above 85 yen amid the recent yen weakening trend,” said Ayako Sera of Sumitomo Trust & Banking.
“If the dollar averages above 85 yen, that would be a plus for exporters,” he added.
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