Japanese confidence rises as global gloom deepens

A key central bank survey offered a cautiously optimistic assessment of corporate Japan, where business confidence is improving even as the global economy's prospects darken. In the Bank of Japan's quarterly "tankan" survey of business sentiment released yesterday, the main index for big manufacturers climbed back into positive territory as a recovery from the March 11 earthquake and tsunami took hold. The latest reading stood at 2, up from minus 9 three months ago. The figure represents the percentage of companies saying business conditions are good minus those saying conditions are unfavourable, with 100 representing the best mood and minus 100 the worst. The earthquake and tsunami disrupted parts manufacturing, leading to critical shortages for industries such as automobiles and electronics. The fallout extended worldwide, with the International Monetary Fund estimating that global car production tumbled up to 30 per cent in the two months after the disaster. The economic aftershocks dragged Japan back into recession and resulted in a sharp deterioration in confidence that sent the main tankan index to its lowest level in more than a year. But factories have put supply disruptions largely behind them now. Industrial production figures last week showed that output had nearly recovered to pre-quake levels. Exports in August rose for the first time in six months. Yesterday's numbers "clearly support our view that Japan's economy continues to recover, largely due to the improvement of auto sector, even with intensified headwinds from slower global growth and yen appreciation," said Masamichi Adachi, senior economist at JPMorgan Securities Japan, in a research note. The mood among big non-manufacturers also climbed into positive territory to 1 from minus 5 in June. Smaller enterprises improved as well, though they weren't feeling quite as optimistic. The confidence index for medium-sized manufacturers rose to minus 3 from minus 12. The small manufacturers' index stood at minus 11 from minus 21. The future appears less certain. Companies in the tankan gave a mixed picture of the months ahead, reflecting deepening worries about global growth, Europe's debt problems and a persistently strong yen. The IMF last month sharply downgraded its economic outlook for the US and Europe through the end of next year. Its chief economist described the world economy as entering a "dangerous new phase."