Japan’s Businesses Less Optimistic Than Expected

Business confidence in Japan improved at a slower-than-expected rate in the first quarter, a central bank survey showed today, suggesting that the world’s second-largest economy won’t recover from its recession soon.

The Bank of Japan’s tankan survey of 9,500 firms showed that of the large manufacturers questioned, 47% more firms are pessimistic than those who are upbeat, giving a reading of minus 47, from minus 49 in the December quarter. Economists contacted by Bloomberg News had expected a reading of minus 44.

Japanese government bonds and the dollar rallied as the weakness of the recovery will likely force the Bank of Japan to keep overnight lending rates at close to zero.

“We were expecting a bigger rise” in the tankan, said James Malcolm, an economist at J.P. Morgan Securities Asia Ltd. “While there’s some bottoming out in the economy, we’re still bumping along at very low levels.”

The survey showed the first rise in business confidence in 21 months. Still, with the government talking up prospects for recovery this year and a number of executives reckoning that the economy has bottomed out, investors were expecting this tankan to point the way for a revival in Japan’s fortunes. A recovery in Japan, which buys 40% of Asia’s exports, would have a positive impact on the region.