The latest Tankan report released by the Bank of Japan revealed a mixed sentiment among large manufacturers and non-manufacturers in the country. While sentiment among large manufacturers declined for the first time in a year, standing at plus 11, sentiment among non-manufacturers reached a 33-year high at plus 34. The survey, which includes about 9,000 Japanese companies, measures corporate sentiment by subtracting the number of companies with negative business conditions from those with positive ones.
The optimism among non-manufacturers can be attributed to the return of tourism, both domestically and internationally, which has been on the rise after being heavily impacted by the pandemic. Incoming travelers have surpassed pre-pandemic levels, boosting sentiment in the service sector. On the other hand, the decline in sentiment among manufacturers can be linked to production stoppages at Daihatsu Motor Co., a subsidiary of Toyota Motor Corp. that specializes in small vehicles, due to a lack of proper safety tests.
The Japanese economy has faced challenges in recent years, including slow wage increases and deflation, rather than inflation, which is affecting other parts of the world. Additionally, soaring energy prices have put a strain on the economy as Japan imports almost all of its oil. The weakening currency, with the U.S. dollar trading at about 150 yen, has also had an impact, benefiting tourism but hurting certain sectors. Despite these challenges, the Bank of Japan raised its benchmark interest rate last month for the first time in 17 years in an effort to shift away from negative rates and boost the economy.
The Bank of Japan has set an inflation target of 2% as a benchmark for escaping deflationary tendencies. It stated that monetary policy will remain easy for some time to support the economy, noting improvements in wages and profits at companies. The tankan report’s forecast for future sentiment among large manufacturers stood at 10, while the index for large non-manufacturers was 27, both lower than the levels reported in the latest survey. The bank remains focused on supporting the economic recovery and achieving its inflation target while navigating the challenges faced by different sectors in the Japanese economy.
