Growing economy: Workers check Toyota vehicles in Kanegasaki, Japan. Large manufacturers in the country say they intend to ramp up their investment. — AFP
Tokyo: Japan’s large manufacturers remain relatively upbeat about business conditions, reflecting a degree of resilience that supports the case for the central bank to keep raising interest rates at a gradual pace even as uncertainty over the prospects for global trade continue to mount.
An index of sentiment among the country’s biggest manufacturers edged lower to 12 in March, the Bank of Japan’s (BoJ) quarterly Tankan report showed yesterday.
The gauge for the biggest non-manufacturers edged higher to 35, the highest since 1991.
The manufacturers result matched the consensus estimate, while the reading for the service sector beat expectations.
A positive number means optimists outnumber pessimists, and the index for large manufacturers has now been positive for a 17th straight quarter.
The outlook for these companies weakened less than expected to 12 from 13.
The Tankan, a key report for the BoJ’s policymaking, comes a month before the central bank’s board next sets policy on May 1.
While most economists expect authorities to wait until June or July to lift the benchmark rate again, there’s lingering speculation that the move could come on that day.
“This Tankan keeps the BoJ on trace for raising rates further,” said Toru Suehiro, chief economist at Daiwa Securities Co. “The results don’t rule out the chance of a BoJ rate hike in May, although I don’t expect that as the BoJ would want to examine more data such as for consumer spending.”
The sentiment survey backs the BoJ’s assessment that the economy has recovered moderately even as pockets of weakness persist.
While larger manufacturers have benefited from the weak yen’s impact on exports, smaller suppliers to those firms have suffered due to higher import costs.
Even so, the index for small manufacturers unexpectedly edged higher to two, while the same gauge for service companies held steady at 16.
Resilient sentiment and higher inflation expectations in the latest Tankan survey of corporate Japan will probably keep the BoJ’s focus on prices,” said economist Taro Kimura.
The March survey was taken from Feb 26 to March 31, at a time when US President Donald Trump’s tariff campaign was continuing to evolve, making the outlook for business conditions fraught with risks.
Generally most responses to the March survey arrive by the middle of the month.
“This data is probably not reflecting the impact of Trump’s tariffs yet,” Suehiro said.
“For instance, the outlook of large manufacturers showed no change. At least prior to the tariffs, business confidence seems resilient but it’s likely to worsen as the tariff effects take a toll.”
Trump’s tariffs now include a 25% levee on auto imports, with so-called reciprocal duties on US trading partners expected soon.
BoJ governor Kazuo Ueda has said the central bank is closely monitoring developments affecting global trade, and he’s noted that he won’t raise rates if the economy is doing very poorly.
Still, the positive sentiment among service sectors bodes well for the BoJ as it signals that on the domestic front, strong wage hikes will help households cope with persistent inflation.
Prime Minister Shigeru Ishiba, whose popularity has sagged due in part to frustration over soaring costs of living, has pledged price-relief measures.
Inflation expectations among businesses remained solid, the Tankan showed.
The average expected annual rate of inflation in five years time for all reporting firms was 2.3%, compared with 2.2% in the previous survey.
The latest reading is the highest on record going back to 2014.
Japan’s large companies across industries plan to ramp up their investment by 3.1% for the fiscal year that started yesterday, compared with 8.7% in the financial year ended on March 31.
Companies generally begin the fiscal year with conservative estimates. — Bloomberg
