Large firms’ confidence hits three-decade high
TOKYO: Japan’s largest service sector firms are their most optimistic in more than three decades, even as confidence among manufacturers softens a tad, a Bank of Japan (BoJ) survey shows, offering a largely positive outlook for the economy as the central bank mulls its next policy move.

An index of sentiment among the country’s largest non-manufacturers advanced to 34 in March, exceeding estimates and marking the highest level in more than three decades, according to the BoJ’s quarterly Tankan report yesterday.

The gauge for the biggest manufacturers slipped to 11 from a reading of 13 in December that adjusted for a new base. The consensus estimate from economists was 10.

The positive figures for both groups showed that optimistic views outnumbered pessimistic ones.

The deterioration in manufacturing sentiment partly reflects the impact of scandals among some vehicle producers, which disrupted output at several of the nation’s biggest automakers, as well as a major earthquake that struck an area north of Tokyo on New Year’s Day.

The sentiment reading for large makers of motor vehicles led to declines, sliding by 15 points.

“The deterioration in manufacturers is mainly due to scandals at some companies, but that’s temporary,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

“There is not much here to indicate the economic fundamentals are worsening, and that’s favourable for the BoJ.”

Maruyama said the data confirm that Japan’s economy is likely to continue a gradual recovery.

Industrial output unexpectedly fell for a second month in February versus the prior month, although authorities expect it to rebound in March.

Large non-manufacturers saw improvement in their sentiment, with the index reaching the highest level since 1991, helped by a surge in inbound tourists.

The number of foreign visitors jumped to a record for February, with a weak yen making the costs of shopping and dining out in Japan relatively cheap.

Those dynamics underpinned sentiment at companies in the accommodation, food and beverage sectors, for which the gauge held at 52.

The real estate gauge rose six points to 52, while information services increased five points to 54, the highest among all sectors.

The yen hit the lowest level in 34 years last week as traders positioned for the likelihood that the gaping interest gap between the United States and Japan might not narrow as quickly as previously thought.

Some US Federal Reserve officials made hawkish remarks, casting doubt on how fast and how far the United States will lower rates this year.

Taro Kimura, a Bloomberg economist, said: “The Bank of Japan’s Tankan survey of business sentiment shows brisk improvement in service sectors in the first quarter, reflecting a pickup in consumer spending on services and solid demand for construction and real estate.”

The yen’s depreciation helps buoy profits among exporters while it weighs on households and small businesses by pushing up import costs.

“With the yen weakening and the stock market rising, there is now a sufficient buffer to absorb the BoJ’s policy changes,” said Yuichi Kodama at the Meiji Yasuda Research Institute.

“I believe that the BoJ is in an environment where it can easily proceed with normalisation.”

Japan’s businesses across all industries anticipated the yen to average 141.42 per US dollar in the financial year starting this month, according to the Tankan, still stronger than yesterday’s level around 151.3, suggesting room for potential upside to their profit forecasts.

The report indicated companies would continue to increase their capital investment, with the large all-industry gauge for capital expenditures (capex) showing 4% growth in the new financial year.

That’s lower than the 13.5% growth estimated last December for the financial year ended in March. Capex plans tend to be revised higher as the financial year progresses.

Whether steady profits get partly channelled into wage growth is a key question for the BoJ and Prime Minister Fumio Kishida. The premier’s popularity has languished around the lowest level since his ruling Liberal Democratic Party won back the office in 2012, due in part to household frustration over inflation.

Kishida repeatedly urged businesses to raise wages as the cost of living rose at the fastest pace in four decades last year. — Bloomberg
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TOKYO: Japan’s largest service sector firms are their most optimistic in more than three decades, even as confidence among manufacturers softens a tad, a Bank of Japan (BoJ) survey shows, offering a largely positive outlook for the economy as the central bank mulls its next policy move.