Most Japan firms expect BOJ to increase rates

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TOKYO- The majority of Japanese firms expect the central bank to lift interest rates further this year, with many looking to front-load capital spending before lending costs rise, a Reuters survey showed on Thursday.

The poll, conducted before the Bank of Japan announced an end to its negative rate policy on Tuesday, showed that just over 60 percent  of respondents expect rates, currently around zero, to rise to 0.25 percent  by the end of the year.

Two-fifths of companies polled said they are looking to boost capital spending in the financial year beginning in April from what they expect to have spent in current financial year. A similar number also said they aimed to undertake much of that spending ahead of rate hikes.

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Only 11 percent  expect to reduce business investment from this financial year.

“We’re drawing down on retained earnings to engage in capital investment,” an executive at a metal products manufacturer wrote in the comments section of the poll.

A manager at a retail company said the company is front-loading bank loans, while a construction firm responded that it was cutting down on interest-bearing debt.

The survey of 498 firms was conducted for Reuters by Nikkei Research from March 6-15, with companies responding on condition of anonymity. A total of 237 companies responded.

The BOJ has been a holdout among central banks in maintaining a spigot of easy money to spur the economy and halt deflation. But corporate Japan is now seeing rising wages and inflation.

Sentiment at the companies remains lacklustre with 63 percent  saying business conditions were not good and another 8 percent  saying they were bad. That was, however, a marginal improvement from February when 60 percent  said business conditions were not good and 14 percent  said they were bad.

Asked about expectations for operating profit in the upcoming financial year compared to their estimates for the current business year, 39 percent  said they expect roughly the same amount, while 23 percent  saw increases of about 10 percent  in income and 13 percent  saw gains of more than a fifth.

For those saying profits were likely to climb, 87 percent  ascribed the gains to improved sales.

On expectations for the yen, 61 percent  predicted it to trade between 140 to 149 yen to the dollar, while 20 percent  saw it still weaker at 150 to 159 yen. Eighteen percent saw it trading between 130 to 139 yen.

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