TOKYO–Japanese corporate sentiment improved less than expected in the first quarter, the Bank of Japan’s business confidence survey released Monday showed, a result that may cool speculation that the central bank could move to raise interest rates by the end of the year.
The main index measuring large manufacturers’ confidence rose to plus 12 in the January-March period from plus 10 in the previous quarter, according to the quarterly tankan survey.
Economists polled by The Wall Street Journal forecast the index would come to plus 15. The index represents the percentage of companies saying business conditions are favorable minus those saying conditions are unfavorable.
Analysts had expected a sharper improvement in business confidence given a recent rebound in Japanese exports and profits on the back of the yen’s weakness and improving global demand.
Companies may be more skeptical than economists that President Donald Trump will meet his promises to strengthen U.S. growth through government spending and deregulation, keeping the dollar strong against the yen. His failure last month to get his signature health-care bill through Congress underscored such concerns.
Expectations that the BOJ may begin to raise interest rates as early as the summer could now weaken. Officials had spent the preceding weeks trying to squash speculation of a potential tightening of BOJ policy by highlighting the distance of inflation to their 2% goal and uncertainties over U.S. policy.
The tankan index for large non-manufacturers came to plus 20 in the March survey compared with plus 18 in the fourth quarter, according to the BOJ. The reading matched a forecast by economists.
Big companies plan to increase their capital investment in the current financial year ending March 2018 by 0.6%, according to the survey. The figure has the potential to be revised higher in the following quarters because Japanese firms tend to take a cautious stance on investment plans at the start of the year.
Large firms lowered their investment estimates for the year ended in March to a 1.4% increase from a 5.5% expansion forecast in the previous survey.
Large manufacturers expect the dollar will trade at an average 108.43 yen this financial year. The dollar was changing hands at Y111.25 in early Asian hours Monday.