April 1, 2013 / 12:51 AM / in 5 years

UPDATE 3-'Abenomics' lifts Japan business mood, households' inflation expectations

* Big manufacturers' sentiment DI -8 vs forecast -7
    * Manufacturers expect improvements 3 months ahead
    * Household inflation expectations hit 4-1/2 year high
    * BOJ likely to ease at Kuroda's first rate review

    By Leika Kihara and Kaori Kaneko
    TOKYO, April 1 (Reuters) - Japanese business sentiment
improved in the first three months of 2013 and households'
inflation expectations hit a 4-1/2 year high, central bank
surveys showed, suggesting that Prime Minister Shinzo Abe's
determined push for monetary stimulus is thawing Japan's
long-held perceptions of intractable deflation.
    The surveys - the first since Abe took office in December -
will help new Bank of Japan Governor Haruhiko Kuroda argue for
bold, experimental steps to boost sentiment when he chairs his
first policy-setting meeting later this week.
    The mood at big Japanese manufacturers improved in the three
months of this year after deteriorating for two straight
quarters, according to the central bank's closely watched
quarterly "tankan" survey for March.
    A separate BOJ survey showed nearly three-quarters of
households expect prices to rise a year from now, the highest
ratio since 2008, suggesting that expectations of aggressive
stimulus are translating into inflation expectations.
    The surveys, released on Monday, come ahead of a BOJ policy
meeting that is expected to start pulling out all the stops to
push up prices, initially by buying longer-dated bonds and
setting a new target focusing on the size of its balance sheet.
The two-day meeting ends on Thursday.
    "The governor is expected to make good on his promise of
pursuing bold monetary easing," said Tatsushi Shikano, senior
economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
    "The tankan result reflected companies' expectations that a
weaker yen and policy steps pursued by the government will have
a positive impact on the economy," he said.
    Abe's ambitious push for hefty stimulus spending and
monetary easing by the central bank - dubbed "Abenomics" - has
offered some relief to the export-reliant economy by helping to
weaken the yen and bolster share prices.
    The tankan's index gauging big manufacturers' sentiment rose
4 points, to minus 8, roughly in line with a median market
forecast of minus 7. They expect business conditions to improve
in the three months ahead, signalling that prospects for the
world's third-largest economy are turning up.

    The tankan report, a key touchstone for BOJ policymakers,
underscores the view that Japan's economy is gradually bouncing
back from last year's recession and headed for a moderate
recovery driven in part by a pickup in global demand.
    In the report, companies also saw prices of their goods and
services falling less than they were three months ago, while an
index of views on sales price moves improved for both
manufacturers and non-manufacturers.
    Abenomics may also be changing the way households see prices
ahead. A quarterly BOJ survey separate from the tankan showed
the ratio of households that expect prices to rise a year from
now rose to 74.2 percent in March from 53.0 percent in December,
the highest level since September 2008.
    The ratio of households expecting their earnings to rise a
year from now increased to 62.6 percent from 55.1 percent in
December, suggesting that Abe's policies are starting to change
persistent expectations that wage growth will remain stagnant.
    In a sign that the recovery is broadening, the tankan's
sentiment index for big non-manufacturers improved 2 points to
plus 6. The index for the three months to June was at plus 9.
    Big manufacturers expect the dollar to average 85.22 yen
 in the current fiscal year from April, up sharply from
their estimate of 80.56 yen for the previous year ended in
March. That is still much lower than recent levels around 94 yen
to the dollar, suggesting that exporters may see further
increases in revenue if current yen levels hold.
    But some analysts warn against reading too much into the
surveys, saying that Abe's policies have only started to lift
sentiment and have yet to boost economic activity itself.
    Big firms plan to cut capital expenditure by 2.0 percent in
the current business year, the tankan showed, suggesting that
the positive mood needs to be sustained longer before companies
are convinced to boost spending.
    The tankan's sentiment indexes are derived by subtracting
the percentage of respondents who say conditions are poor from
those who say they are good. A negative reading means pessimists
outnumbered optimists.
    Analysts expect the world's third-largest economy to have
grown 1.0 percent in the year that just ended in March, and to
expand 2.2 percent in the current fiscal year.

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