I. Survey system

     (1) Period of the research: January 2011.

     (2) Survey items: Business environment and management policy

     (3) Coverage: corporations listed in the first and second sections of stock exchanges in Tokyo, Osaka and Nagoya (2,389 companies in total).

     (4) Survey method: self-reporting mailing method using prescribed questionnaire.

     (5) Number of companies that responded: 863 (461 of manufacturing sector and 402 of non-manufacturing sector).

     (6) Response rate: 36.1%.

II. Summary of the Survey Results

1. Acceleration in real economic growth rate forecast for FY2011
     Japan's real economic growth rate is forecast to be at 0.9% in the next fiscal year (FY2011), 1.2% over the next 3 years (FY2011-2013) and 1.3% over the next 5 years (FY2011-2015). The forecasted growth rates for the next fiscal year and over the next 3 years are thus higher than those in the previous survey a year ago, but the forecasted growth rate over the next 5 years remains unchanged.
     The forecasts for nominal economic growth rate are at 0.3% for the next fiscal year, 0.7% over the next 3 years and 1.0% over the next 5 years. The forecasted growth rate for the next fiscal year turned from the negative to the positive territory, followed by a gradual recovery over the next 3 years. The forecasted growth rate over the next 5 years is unchanged from a year ago.
     Comparing real and nominal growth rate profiles, nominal growth will fall short of real growth in each of next fiscal year, over the next 3 years and over the next 5 years, implying entrenched deflation. The expected inflation is -0.5% over the next 3 years and -0.3% over 5 years.
     As the outlook for the real demand growth rate by industry, the all-industry average (average of actual values) is forecast to be at 0.8% in the next fiscal year (FY2011), 0.9% over the next 3 years and 0.9% over the next 5 years. The forecasted growth rate will turn positive from negative, followed by a gradual recovery over the next 3 years and over the next 5 years.
     In each of the next fiscal year, over the next 3 years and over the next 5 years, the forecasted growth rates of non-manufacturing industries are lower than those of manufacturing industries.

2. Breakeven exchange rate for exporting companies to be 86.3 yen per dollar
     The breakeven exchange rate for exporting companies (average of actual values) has risen to 86.3 yen per dollar from the previous survey a year ago (92.9 yen per dollar). However, the breakeven exchange rate is slightly weaker than the rate in the month immediately before the survey conducted.

3. Average purchase price rises, average sales price falls
     The average purchase price for manufacturing industries after 1 year is forecast to rise by 2.0%, while the average sales price will fall by 0.3%. In other words, the rise in purchase prices will not be passed through to sales prices, resulting the deterioration of the terms of trade
     The average purchase price for non-manufacturing industries after 1 year is forecast to rise by 1.3% and the average sales price by 0.3%. As with manufacturing industries, therefore, the rise in purchase prices will not be passed through to sales prices, and the terms of trade are again likely to worsen.

4. Capital investment growth forecast at 3.4% over next three years
     Capital investment is forecast to grow by 3.4% over the next 3 years on an all-industry basis. While this is the 2nd consecutive year of positive growth, the rate is still low compared to the levels in the FY2004 to FY2007 surveys .

5. The number of employees forecast to rise over the next 3 years
     The number of employees over the next 3 years is forecast to rise by 1.0% on an all-industry basis. Although this is the 2nd consecutive year of positive growth, the rate of growth remains low. The growth rate of manufacturing industries will turn to positive while the growth rate of non-manufacturing industries will slightly accelerate.

6. Overseas production ratio in a rising trend
     The overseas production ratio for all-manufacturing industries basis was at 17.1% in FY2009, and is forecast to rise to 18.0% in FY2010 and 21.4% in FY2015.
     Conversely, the ratio of reverse imports was at 22.6% in FY2009 and is forecast to drop to 22.0% in FY2010 and 20.6% in FY2015.
     The most commonly cited reason for setting up overseas production bases is “Demand is strong, or is forecast to expand, in local markets and markets in neighboring countries” with 42.9%, followed by “Labor costs are low” with 26.1% and “Low costs of materials, overall production processes, distribution, land, buildings, etc.” with 8.9%.