Large Japanese firms' sentiment sharply improves in April-June

The business sentiment of large Japanese companies in the second quarter of 2013 sharply improved from the previous term on the back of higher stocks triggered by hopes of an export rebound fuelled by the yen's slide, a government survey showed Tuesday.

The confidence index covering firms capitalized at 1 billion yen or more came to 5.9 in the April-June quarter, up from 1.0 for the three months through March and hitting its highest level since the July-September period in 2011, according to the joint survey by the Finance Ministry and the Cabinet Office.

The index is calculated by subtracting the percentage of companies reporting deteriorating business conditions from those observing improvements.

Sentiment at manufacturers jumped to 5.0 from minus 4.6 as Prime Minister Shinzo Abe's economic policies dubbed "Abenomics," centering on bolder monetary easing and massive fiscal spending, pushed down the yen steeply, fanning expectations for recovery in exports, a key driver of growth, and driving up stock prices.

Nonmanufacturers' sentiment also rose to 6.4 from 4.0.

With the business mood improving, large and smaller companies in all industries plan to boost capital spending by 7.2 percent in fiscal 2013 above the previous year, the survey showed.

Looking ahead, large firms expect business conditions to continue picking up over the next six months, with the index reading 14.0 for the July-September period and 11.5 for the October-December quarter.

The results, however, are based on valid answers provided by 12,826 companies as of May 15, before financial markets began to fluctuate widely with skepticism sprouting about Abe's policies over whether they can really shore up Japan's economy.

The equity market turbulence began May 23, when the 225-issue Nikkei Stock Average tumbled 7 percent, undermining hopes that the world's third-largest economy will return to a full-fledged growth path, analysts said.

Deteriorating corporate and household sentiment means domestic demand may shrink, with firms reluctant to expand their businesses and consumers unwilling to spend against a backdrop of pessimism about the future of the economy, they added.