TOKYO (MNI) – Major manufacturers plan to increase their capital
spending by 2.9% on average in fiscal 2010 ending March 31, 2010,
revised down from a 4.0% rise predicted in the previous Tankan.

This follows an estimated record year-on-year drop of 31.4% for the
sector in fiscal 2009.

All major firms, including non-manufacturers, expect their capital
spending to rise 2.9% in the current fiscal year, revised up from the
2.4% rise seen in the previous survey.

Smaller firms forecast their capex will fall 8.3% from a year
earlier, improving from the 15.0% fall projected in the previous Tankan.

Small businesses tend to gradually revise up their investment plans
as the fiscal year progresses.

“The latest revisions to business investment plans are in line with
past revision patterns,” the BOJ official said.

Meanwhile, the Tankan showed that sales in all sectors in fiscal
2010 are estimated to rise 4.3% from a year earlier.

In addition, all sectors expect their current profits to turn
positive this fiscal year.

Large companies are now forecasting a 32.0% rise in fiscal 2010
profits, improving from the 28.3% gain estimated in the September
Tankan.

Smaller companies expect their current profits to rise 17.9% in
fiscal 2010, up from a 15.0% rise seen in the previous survey.

In fiscal 2010 current profits among all companies surveyed are
expected to rise by 28.2% from a year earlier, revised up from a 24.6%
rise forecast in the September survey.

The Tankan results showed that Japanese firms were still laden with
excess production capacity and employees, suggesting that corporate
executives will remain cautious about resuming investment in plant and
equipment, hiring new graduates and raising salaries.

“Excess capacity has been adjusted since peaking in March and June
2009 but the move is now marking time,” Kobayakawa said.

The December poll showed that sentiment on excess production and
sales capacity among major manufacturers was unchanged in December after
easing in September for the sixth straight quarter. Sentiment on this
questions among smaller manufacturers was also unchanged after having
eased each of the previous five quarters.

Among major manufacturers, the diffusion index for production
capacity — the percentage of firms reporting excess capital minus the
percentage of firms reporting the opposite — stood at +12, unchanged
from September.

The production capacity index for small manufacturers stood at +15,
unchanged from the previous Tankan, the 11th straight quarter the index
showed overcapacity.

Meanwhile, the index for employment conditions — the percentage of
firms saying they have excess labor minus the percentage of firms saying
that labor is in short supply — fell by 1 point to +8 for large
manufacturers.

It was the seventh consecutive quarter that sentient on in excess
workforce has eased but the index still showed excess for the ninth
straight quarter.

The index showing excess employees among major non-manufacturers
stood at +4, improving from +5 at the previous survey.

The employment index for smaller manufacturers was unchanged from
the previous survey, after improving for the fifth straight quarter.

While some improvement in wages has emerged, overall job creation
is still slow.

“The adjustment to excess workforces continues since peaking in
March and June 2009,” said the BOJ official.

The December Tankan showed that the number of employees at major
firms at the end of September fell 0.9% from a year earlier, posting the
second straight y/y drop after -1.0% at end-June, while those employed
by small businesses fell 0.9% in September compared to a 1.1% drop in
June.

As for plans to hire new graduates, major firms expect to slash
them by 31.1% year-on-year during the current fiscal year, which would
be the largest cut since -32.0 in fiscal 1994.

On corporate financing, the Tankan showed that the financial
position among borrowers and the lending attitude among financial
institutions improved for the seventh straight quarter.

The Tankan survey was conducted from Nov. 11 to Dec. 14.

tokyo@marketnews.com
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