Rise in yen weighs on Japan’s corporate manufacturing sentiments

Sentiments at Japan’s large manufacturing plants declined for the second consecutive quarter over the April-June period as a continuous rise in yen subdued the earning prospects of exports, while making the imports cheaper. However, manufacturing companies did revise their capital expenditure plans.

The business survey index (BSI) of sentiment at large manufacturers fell 11.1 in April-June, compared with -7.9 in January-March, data compiled by the Ministry of Finance and the Economic and Social Research Institute showed.

The index measuring big manufacturers' sentiment three months ahead was at 7.0 compared to 7.1 previously. Companies forecast their capital expenditure to rise 3.8 percent in the business year that started in April, versus a 6.6 percent decline forecast in the previous survey.

Sentiments are expected to rebound in July-September period, offering encouragement to policymakers navigating weak exports and lingering concerns about the global economy.

"Right now, the economy is in a holding pattern, but I don't expect the things to worsen from here on," said Shuji Tonouchi, Senior Fixed Income Strategist, Mitsubishi UFJ, Morgan Stanley Securities.

The yen has gained more than 12 percent against the dollar since the start of the year on uncertainty over the pace of pending United States Federal Reserve interest rate increases. A rising yen tends to worry Japanese companies because it reduces overseas earnings, but the sentiment survey found manufacturers believe the negative impact will be temporary.

Meanwhile, the survey results are expected to provide some relief to the Bank of Japan, which is scheduled to hold a monetary policy meeting later this week. The upgrade of capital expenditure is likely to bolster the central bank's argument that its negative interest rate policy would spur the lending.