Confidence among Japan’s large manufacturers picked up for a second consecutive quarter, as the economy continued its patchy recovery from the pandemic.
An index of sentiment among the country’s biggest manufacturers rose to 9 in September from 5 three months earlier, according to the Bank of Japan’s quarterly Tankan report Monday. The result exceeded the consensus estimate of 6, and the reading shows optimists outnumber pessimists by a growing margin.
Confidence among non-manufacturers rose to 27 from 23, as the survey highlighted a continuing divide wherein manufacturers monitor the somewhat fragile outlook for global growth and non-manufacturers continue to benefit from the post-pandemic reopening.
The yen’s weakening to levels not far off multi-decade lows is spurring this effect, as it boosts the spending power of inbound tourists who are returning in droves, supporting a wide swath of companies in the services industry. The weak yen also deters outbound travel, channeling leisure spending to domestic destinations.
The broad improvement in the Tankan is in line with the central bank’s view that the economy remains on a moderate recovery path. The weaker yen also brightens the earnings outlook of exporters including carmakers, which were among those posting robust results for the April-June period.
The Tankan showed companies forecast the dollar-yen to trade at 135.75 in the current fiscal year, compared with 132.43 three months ago.
The latest sentiment readings aren’t likely to shake BOJ Governor Kazuo Ueda’s resolve to hold policy settings steady for now, even if authorities upwardly revise official inflation forecasts — as widely expected by economists — when they gather later this month.
The BOJ is closely watching corporate sentiment as authorities examine various data to judge whether inflation might settle into a positive cycle in which it’s driven by domestic demand and accompanied by wage growth. A big part of recent price gains resulted from higher food and fuel costs due to the weak yen and soaring energy prices.
Data Friday showed that consumer prices excluding fresh food slowed to 2.5% in Tokyo in September, as cost-push factors abated and demand forces remained fragile. Industrial output was unchanged month on month in August, and consumer confidence fell for a second month in September, prompting the Cabinet Office to downgrade its assessment to say the recovery in sentiment has stalled.
Prime Minister Fumio Kishida ordered his cabinet to compile a package of fresh economic support measures that will include help for households coping with higher prices and policies aimed at encouraging companies to boost wages and investment. He’s already extended subsidies to keep a lid on gasoline prices until the end of 2023.
(Adds details from the report)