Khamis, 14 November 2013

The Star Online: Business

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The Star Online: Business

Japan Inc cheers Abe growth plan, but wary on capex, wages


TOKYO: Japanese companies are enthusiastic about Prime Minister Shinzo Abe's economic-growth plans, although they remain cautious about boosting wages or investment – two elements that are key to securing a sustainable recovery, a Reuters survey showed.

The Japan Inc brownie points for Abe come nearly exactly one year after he jolted financial markets with an election campaign that promised bold policies and then followed through with massive monetary easing and hefty fiscal spending.

Companies are now enamoured with the potential of the third stage in "Abenomics" – a planned slew of reforms encompassing tax, labour and deregulation, saying they are hopeful the measures will provide a catalyst for change.

"We are not in complete agreement, but we feel that just creating the sense that business conditions are improving is a step forward," wrote an executive at a metals and machinery firm.

That sentiment was echoed by many firms in the Reuters Corporate Survey, which showed nearly three-fourths of the 247 companies answering a question on Abe's growth strategy said it was "commendable" or "very commendable".

Abe's monetary and fiscal policies aimed at breaking a 15-year run of deflation and tepid growth helped lift Tokyo stocks 72% and push the yen down 20% over the past year.

In recent months, however, financial markets have greeted Abe's longer-term growth strategy with more scepticism, believing many of the reform measures will be watered down.


The survey showed it was much less clear how far Japan Inc will follow through with action that Abe's policies are designed to spur.

About one-fourth of the companies in the survey, conducted from Oct 25 to Nov 11, said they will boost capital spending – a result that underlines that some progress has been made.

"The biggest change from a year ago is that firm's outlooks for the future have gotten brighter, the biggest part of that being that many have increased their capital investment plans," said Akihiro Morishige, an economist at Mitsubishi Research Institute who reviewed the poll results.

But at the same time, that one quarter of companies is not enough to ensure a lasting recovery and recent business investment figures have been disappointing.

Capital spending has climbed for three straight quarters but only showed growth of 0.2% in July-September, well below expectations, while core machinery orders, a key predictor of capital spending, fell more than expected in September, data this week showed.

In response to the same question on how business plans may change – a question that allowed for multiple answers – one quarter of companies also said they plan to strengthen their domestic businesses, another small feather for the Abenomics cap.

But just 8% said they would raise wages. The portion of companies that plans to lift their number of permanent employees was also only 8%.


The mixed results come as Abe struggles to deliver on his growth strategy, key parts of which are currently before parliament.

He watered down a plan to cut Japan's corporate tax rate, making it a longer-term goal, on resistance from the Finance Ministry, which is trying to rein in the country's runaway debt.

A plan to create "special zones" where firms can enjoy tax breaks and exemptions from regulations also faced resistance. A provision to relax labour rules in the proposed zones, making it easier for companies to lay off employees, faltered after an outcry from media and labour unions that it would undermine Japan's highly prized job security.

One unambiguous success for Abenomics has been the yen – which has weakened to around 100 yen to the dollar from 79 yen a year ago, making Japan's exports more profitable and inflating the value of overseas earnings in terms of the local currency.

Just over half the companies in the Reuters survey said they prefer the yen to trade around current levels with a further one-fourth favouring a slightly stronger yen. Over 60% forecast the yen will stabilise around current levels for the six months to March.

The poll was taken alongside the monthly Reuters Tankan survey, which showed on Thursday that confidence among Japanese firms rose for the first time in three months in November and is seen improving further over the next three months.

The corporate survey, which is conducted by Nikkei Research for Reuters, polls upper management at 400 companies each capitalised at more than 1 billion yen. The firms, split evenly between manufacturers and non-manufacturers, provide responses on condition of anonymity – Reuters. 

Most firms see Japan missing BoJ's price goal


TOKYO: Nearly 90% of Japanese firms expect consumer inflation to fall short of the central bank's 2% goal in the next fiscal year, a Reuters survey showed on Friday, adding weight to the argument of many analysts who say the target is too ambitious.

Seeking to help Japan escape 15 years of grinding deflation, the Bank of Japan offered an intense burst of monetary stimulus in April, pledging to double the supply of money to the achieve the 2% goal.

Inflation has gradually picked up with core consumer prices up 0.7 % in the year to September, although most of the increase was due to rising fuel prices and a weak yen that inflates the cost of raw material imports.

The Reuters Corporate Survey showed that half of the 235 firms that responded to the question on inflation said inflation was likely to range between 0.5% and 1.5% in the business year beginning in April 2014.

But a significant portion of respondents did not see even that, with nearly 40% saying they expect inflation to range from negative levels to about 0.5%.

If the Bank of Japan's policies work as expected, companies will be discouraged from holding onto their huge piles of cash and nudged into boosting spending on investment and wages, officials at the central bank say.

But the survey, conducted Oct 25 and Nov 11, also showed only a quarter of companies planning to increase capital spending and just 8% thinking of raising wages, further suggesting that many are not yet convinced Japan will make a decisive end to deflation.

"We have ample cash for now, so the BoJ's policy doesn't affect our business operations much," said an executive at an electric machinery maker in the survey.

In its most recent forecasts issued last month, the BoJ projects core consumer inflation of 1.3% next fiscal year and 1.9% in fiscal 2015.

But even some within the BoJ's board side with many private-sector analysts who say the 2% price goal and its time frame of trying to achieve it in two years are too ambitious.

Some market participants believe the central bank may be forced to ease monetary policy further next April, when the economy faces headwinds from a national sales tax hike and when the bank needs to issue new quarterly projections – Reuters.

Barakah Offshore up on possible Petronas job


KUALA LUMPUR: Shares of Barakah Offshore rose at midmorning on Friday on a possible RM3bil Petronas contract.

At 10.16am, its shares rose four sen to RM1.36 with 7.77 million shares done between RM1.34 and RM1.38.

The FBM KLCI rose 3.59 to 1,787.79. Turnover was 350.8 million valued at RM249.91mil. There were 248 gainers, 191 decliners and 278 counters unchanged.

StarBiz had on Tuesday reported oil and gas players are going after Petronas' Pan Malaysia transportation and installation (T&I) tenders, which would most likely be awarded by end-2013.

The report said "while SapuraKencana has also bid for Packages A and B, it is believed that GOM Resources is the frontrunner for the shallow-water Package B, while Package A is being battled out between newly listed Barakah Offshore Petroleum Bhd's PBJV Group and Target Energy".

Petronas has applied caps of RM900,000 per day on the operating day rates for Packages A and B, RM1mil per day for Packages C and D, and RM1.2mil per day for Package E.

Based on this, Alliance Research estimates that Packages C, D, and E could be worth RM3bil to RM3.5bil, assuming a three-year term. 


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