Improved outlook in Japan in June

The news flow from Japan continues its gradual shift towards a more positive balance.

The Nomura/JMMA Purchasing Managers' Index (PMI) rose for the sixth straight month in June to 54.0, its highest level since last August, from 53.5 in May.

The Bank of Japan's quarterly Tankan survey revealed today that business confidence at large Japanese manufacturers recovered more than expected in June from three months ago, with the headline index hitting plus 18, up from plus 14 in March. The index of large non-manufacturers also improved to plus 15 from plus 11. Among small- and medium-sized firms, the index for manufacturers rose to plus 2 in June from zero in March, while that for non-manufacturers rose to minus 12 from minus 14.

Capital expenditure was forecast to rise 5.4 percent in the current year to March 2006, up sharply from a fall of 2.2 percent in the March survey. Companies, though, were cautious on earnings, and labour indices did not indicate tightness in the demand for workers.

Japan's jobless rate did stay at 4.4 percent in May, remaining at a more than six-year low. Spending and income in salaried households in May remained weak, though, falling 2.0 percent and 1.9 percent respectively on a real, year-on-year basis.

Deflation continued to abate. Core consumer prices in Japan were flat in May from a year earlier while month-on-month, the core consumer price index (CPI) rose 0.2 percent, its third straight month of increase. Less positively, core consumer prices in Tokyo, a leading index of nationwide trends, fell 0.4 percent in June from a year earlier and 0.1 percent from the previous month.

The positive pieces of news from Japan still come in fits and starts, but that may not be a bad thing, remembering that a bull market climbs a wall of worry.