Japanese Manufacturers Feeling More Upbeat

Tankan survey latest sign that Japanese economy is on the mend.

TOKYO (AP) - Japanese companies are more optimistic about business prospects, a central bank survey said Monday, sending stocks higher and fanning speculation that the bank will raise interest rates as early as next week.

The Bank of Japan's closely watched ''tankan'' survey showed that the major manufacturers' confidence index inched up to 21 in the second quarter from 20 in the previous quarter. A positive number means optimistic companies outnumber pessimistic ones.

The survey, which polls 10,000 companies, also indicated an improvement in sentiment at non-manufacturers and that companies plan to boost capital spending.

''This is a green light for the BOJ - the BOJ is set to go'' for a quarter point rate hike at its next policy-planning meeting on July 13-14, said Jesper Koll, chief economist at Merrill Lynch in Tokyo.

Japanese markets rose for a third day on the news, with the Nikkei 225 index gaining 0.43 percent to 15,571.62.

The Bank of Japan has been mulling when to raise interest rates - at zero for five years to spur a recovery - amid signs that the economy is finally emerging from a decade-long slump.

In particular, the central bank has said it won't act until prices, which had been declining, start to rise consistently. On Friday, the government said core consumer prices rose 0.6 percent in May, the seventh straight monthly gain.

The conditions for a rate increase ''have mostly fallen in place with this good tankan result,'' added Michiro Shirakawa, chief economist at the Tokyo office of Credit Suisse Securities and a former BOJ official.

Bank of Japan Governor Toshihiko Fukui has said monetary decisions should be ''made early'' and ''in small increments.'' Local media reports have said the bank could decide to raise interest rates as early as next week's meeting.

However, a scandal over Fukui's investment in a fund run by a manager arrested on suspicion of insider trading could undermine the central bank's credibility and cause it to hold off on any changes, some experts say.

Government officials also have warned against an early increase in rates, which would raise borrowing costs, fearing it could choke off the recovery.

Top government spokesman Shinzo Abe said again Monday that the BOJ should keep interest rates at zero to ensure the end of deflation, or falling prices.

''I believe the economy needs support from the financial side by the BOJ maintaining the zero-rate policy,'' Abe said at a news conference. ''I hope the BOJ will work with the government to make sure deflation has been overcome, and won't remerge,'' he said.

Conditions are expected to improve in the coming months, the survey showed, with large manufacturers forecasting a sentiment index reading of 22 for September, up 1 point from June. Big non-manufacturers expect a reading of 21 in September, up from 20 in the second quarter.

Major Japanese firms plan to increase capital expenditure by 11.6 percent on average in the current fiscal year, which started in April, much better than a forecast of a 2.7 percent increase made in the March tankan survey.

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