(Reuters) - Big Japanese manufacturers grew more pessimistic about conditions in the second quarter as a nuclear meltdown, power shortages and damage to supply chains after an earthquake in March weighed on sentiment.
However, companies ramped up capital expenditure plans for the fiscal year that started in April, compared with the first quarter, supporting the view of the central bank and most economists that the economy will pull out of recession in the latter part of this year.
The Bank of Japan, which is due to announce the result of its monthly policy review later on Tuesday, has repeatedly described current economic conditions as severe, but voiced confidence that the economy would resume moderate growth later this year.
“The big deterioration in business sentiment in April-June fully reflects the impact of the March earthquake and tsunami and suggests a sharp deterioration in the Bank of Japan’s tankan business sentiment survey due in July,” said Junko Nishioka, chief economist at RBS Securities in Tokyo.
“But the current downturn is different from past recessions in that chances of a near-term rebound are high. The data shows confidence will improve in July-September, backing the general view that the economy is headed for a gradual recovery.
“The BOJ probably won’t feel the need to take additional easing steps given that the economy is performing in line with the BOJ’s forecast.”
The business survey index (BSI) of sentiment at large manufacturers plunged to minus 23.3 in April-June, compared with minus 3.2 in January-March, a joint survey by the Ministry of Finance and the Economic and Social Research Institute showed on Tuesday.
Companies see capital spending in the fiscal year to March 2012 rising 4.9 percent from last fiscal year. That compared with the previous survey’s 0.5 percent fall.
The BOJ will consider expanding a loan scheme that targets growth industries by up to 1 trillion yen ($12 billion) at a rate review ending Tuesday, sources familiar with the central bank’s thinking have told Reuters, keeping up its efforts to battle chronic ills that are plaguing the economy.
The BOJ’s closely watched tankan survey for the second quarter is due on July 1.
Japan is facing its worst crisis since World War Two after a 9.0 magnitude earthquake and a tsunami slammed its northeast coast on March 11, triggering meltdowns at a nuclear power plant.
Shortages of electricity could disrupt some manufacturing activity in the summer, but companies have been making progress in restoring lost production and mending supply chains of parts needed to make goods.
Economists expect Japan’s gross domestic product to contract for a third straight quarter in April-June and then resume growing in the second half of the year as exports and production recover.