Japan’s business confidence hits its highest level since 2018

japan business confidence

A woman looks at the landscape of the city and the snow-capped Mount Fuji (rear L) in the distance from the observation deck of a skyscraper in Tokyo on December 14, 2018. AFP

TOKYO – Confidence among major Japanese manufacturers has reached its highest level since 2018, an important business survey shows on Thursday, as they focused on a strong recovery after the pandemic despite some setbacks.

The Bank of Japan’s Tankan Business Survey – a quarterly survey of about 10,000 companies – showed a reading of plus 14 for major manufacturers, compared to plus five in the previous quarter.

The short-term survey on business sentiment reports the difference between the percentage of companies that are positive and those that see the conditions as unfavorable.

A positive number means that more manufacturers see business conditions as favorable than those who consider them unfavorable. It is considered to be the broadest indicator of how Japan Inc. alright.

The figure for large producers has improved in four straight quarters after plunging into negative territory in April 2020 for the first time in seven years.

The reading “supports our view that the economy’s disappointing start to the year does not prevent vaccines running a strong rebound towards the end of the year,” Tom Learmouth, Japanese economist at Capital Economics, said in a note.

For medium-sized companies, confidence was up to plus five from minus two, while the mood for small companies rose to minus seven from minus 13.

Among non-manufacturing companies, it rose only slightly from minus one to plus one, with spending being hit by successive virus measures this year.

The headline figure for confidence among major producers was slightly lower than the estimated 16, according to economists surveyed by Bloomberg.

But Learmouth said it still pointed the way to an improvement.

“All in all, the study strengthens our perception that a weak start to the year will soon make room for a strong recovery,” he wrote.

“We believe that GDP will be back to pre-virus levels by the end of this year and back on its pre-virus path by the end of 2022.”

But others were less optimistic, pointing to the continuing weakness in sentiment among smaller companies and outside the manufacturing sector.

“Even for large manufacturing companies, the forward-looking outlook index was mixed with large and medium-sized manufacturing companies and small non-manufacturing companies expecting conditions to worsen,” wrote Robert Carnell, Regional Research Officer for Asia-Pacific at ING Economics, in a note.

“So if this is reflected in GDP figures, the outlook for 3Q is probably not much better than it would be for 2Q,” he added.

The study “suggests that the best of the recovery from the large Covid-induced 2020 decline in activity has now passed.”

Japan has seen a smaller virus outbreak than many countries with around 14,750 deaths despite avoiding hard lockdowns.

But the government has introduced emergency virus measures several times this year to curb increases in infections and has been criticized for the initially slow start of the vaccination program.

The vaccination rate has now increased, with about 11.5 percent of the population now fully inoculated.

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