Higher 2013 profits from Japan Inc may stay in-house-poll

TOKYO, March 22 Thu Mar 21, 2013 6:00pm EDT

TOKYO, March 22 (Reuters) - More than half of Japanese firms expect a profit rise in the country's next traditional business year, a Reuters poll showed on Friday, but investors looking to gain from the fattened coffers may be dismayed as companies keep the cash in-house.

Japanese economic sentiment is rising as Prime Minister Shinzo Abe's policy mix of monetary and fiscal stimulus lifts hopes the export-driven economy is emerging from a slump caused from the fallout of the European debt crisis and a territorial spat with major trade partner China in the financial year that ends later this month.

Abe's policies have helped drive the yen to three and a half-year lows against the dollar, supporting the traditional export engine and adding to gradual pickup in the export markets for a range of Japanese goods from cameras to cars.

Fifty-four percent of the 243 Japanese companies that responded to the question in the Reuters Corporate Survey said they are forecasting a rise in results for the financial year that starts in April from the previous period, while 30 percent answered they expect roughly the same amount.

"The weaker yen is lifting the competitiveness of Japanese companies and higher stock prices are causing consumer sentiment to pick up," said a respondent at a electronics firm that forecasts a slight rise in profits.

Japan's consumer confidence index hit its highest since mid-2007 in February with expectations for price increases rising, in a sign an economic recovery is gradually broadening.

"For households and corporations that have been exercising fiscal restraint up to now, spending will likely increase since economic conditions globally are on the path to improvement and expectations of changes to Japan's fiscal policy are moving (domestic) stocks and foreign exchange in a good direction," said Akihiro Morishige, a researcher at Mitsubishi Research Institute.

R&D EYED FOR RESERVES

While higher profits often lead Western firms to increase shareholder value by lifting dividends and buying back shares, few Japanese firms are entertaining such actions, according to the survey conducted between March 4-18 for Thomson Reuters by Nikkei Research.

In response to a poll request to list the top three choices for utilizing cash on hand, research and development topped the list, while maintaining reserves was second and overseas and domestic expansion essentially tied for third place. Lifting dividends and share buybacks, where the second-to-last and last, respectively, of the seven available choices.

Many companies in Japan, particularly consumer electronics makers like Panasonic Corp, have cut investments in recent years to deal with financial losses.

"For firms that have seen their technological advantage slip, there is a need to invest in R&D to regain lost ground, and for firms that have a strong technological advantage, such as component makers, there is a need to keep investing in order to maintain it," Morishige said.

Some companies are already increasing their investment focus.

"From fiscal 2013 on, and a little clearer than previously, our top strategy for growth with be (R&D) investment," Kenichiro Yamanashi, the president of Mitsubishi Electric Corp told a small group of reporters earlier this week.

But the start of a wide scale investment spree may take some time as companies wait to see if the next step in "Abenomics," structural reform, is able add to the boosts that big spending and a push for hyper-easy monetary policy have provided so far.

"It's not just our industry, but all across Japan, capital investment is not starting to grow and investments to increase production are not improving," Panasonic Chairman Fumio Ohtsubo said at an electronics industry event last week.

The poll was taken alongside the monthly Reuters Tankan survey that showed on Thursday that confidence among Japanese manufacturers improved for the fourth consecutive month in March and that a weaker yen and the government's stimulus plans are helping to lift sentiment.

The Reuters Corporate Survey polls 400 target companies that are each capitalised at more than 1 billion yen. The firms, which are split evenly between manufacturer and non-manufacturers, are not required to answer every question and provide responses on the condition of anonymity.

(Additional reporting by Maki Shiraki, Reiji Murai; Editing by Matt Driskill)