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Japan Inc more upbeat on tax-hike rebound, sees profit growth: Reuters poll

The silhouette of Japan's highest Mt. Fuji is seen beyond buildings in Tokyo November 15, 2012. REUTERS/Toru Hanai
The silhouette of Japan's highest Mt. Fuji is seen beyond buildings in Tokyo November 15, 2012. REUTERS/Toru Hanai

By James Topham

TOKYO (Reuters) - Large Japanese firms are growing more confident about weathering the impact of an imminent sales tax increase and they expect further profit rises even after a bumper year, a Reuters poll showed - encouraging signs for an economy that is seeing a sharp slowdown in growth.

While the sales tax hike to 8 percent from 5 percent on April 1 is necessary to bolster the country's finances, many fear that it could wallop consumer sentiment and derail the success Prime Minister Shinzo Abe has had with weakening the yen to help exporters and with boosting stocks and corporate profits.

Consumers typically spend big in the months ahead of such tax hikes and tighten their purse strings for some time afterwards. A sales tax increase for Japan in 1997 has been blamed for playing a part in depressing economic growth and creating the deflationary mindset that has long weighed on the country.

But the Reuters Corporate survey, conducted March 3-14, showed 59 percent of respondents expect revenue to return to year-earlier levels within nine months of the tax hike, up from 47 percent who responded to the same question in December.

Some 40 percent expect a bounce back within six months, compared to 29 percent in December.

Reasons cited for the upbeat outlook include expectations of improvements in bonus payments, a surge in public works spending and other building efforts related to reconstruction after the Fukushima disaster and the 2020 Tokyo Olympics, as well as expectations of more government stimulus.

"Passing along the costs of the sales tax hike is going smoothly overall," wrote an executive at a machinery maker, one of 253 companies that responded to the question on the impact of the tax hike. "I don't think it will take much time for sales to recover."

Executives respond anonymously to the Reuters Corporate Survey of 400 firms, which is split evenly between manufacturers and non-manufacturers.

Hideki Matsumura, a senior economist at the Japan Research Institute who reviewed the results, also said spending ahead of the sales tax hike did not seem as big as previous tax hikes. He noted that many consumers had already bought big ticket items such as TVs and cars in recent years due to government subsidies designed to boost the economy and promote eco-friendly goods.

PROFITS UP

The survey, conducted for Reuters by Nikkei Research, also showed that more than half the companies expect higher profits in the next business year from April, though most of those respondents saw the rise as slight. One-third said they expect similar results to this year's strong showing.

Profits, especially for Japan's industrial core of manufacturing exporters, have soared on the back of Abe's bold monetary and fiscal policies. Nomura analysts have predicted that the 295 Japanese firms in the Russell/Nomura Large Cap Index will see annual operating profit rise an average 35.8 percent this business year.

But while the outlook for a tax-hike rebound and corporate profits was relatively upbeat, the survey also underscored that ensuring a self-sustaining recovery - for which boosts to base pay and domestic capital spending are seen as key - will remain a significant challenge for "Abenomics".

Weaker consumer spending, business investment and exports have caused to Japan's economic growth to slow to around 1 percent in the second half of 2013, sharply down from an annualized growth rate of above 4 percent in the first half.

Even with higher profits, major manufacturers said in the survey that their priorities in putting their cash to use lie with research and development, overseas expansion and maintaining their reserves.

A lack of interest in expanding in their home market or boosting wages was particularly worrying, said Matsumura at Japan Research Institute.

"Corporate profits have gotten better, but the Japanese economy will not if this is the case," he said.

The survey also showed that while a quarter of companies are worried about Abe's nationalistic stance that has angered Japan's Asian neighbors, just under half said there had been no impact on their overseas business plans. About one third said they were unsure about the impact.

Abe visited a shrine honoring Japan's war dead in December, infuriating China and South Korea, which said the shrine glorifies Japan's wartime and colonial brutality.

(Editing by William Mallard and Edwina Gibbs)

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