Economy

Japan Big Manufacturers’ Mood Improves to 2-year High, BOJ Tankan Shows

Yomiuri Shimbun file photo
The Bank of Japan

Reuters

10:28 JST, July 1, 2024

TOKYO (Reuters) — Confidence among big Japanese manufacturers improved in the three months to June to reach levels unseen in two years, a closely-watched survey central bank showed, backing up on its view the economy is on track for a moderate recovery.

But the mood among big service-sector firms worsened for the first time in four years, the “tankan” survey showed on Monday, suggesting that rising living costs from the weak yen were weighing on consumption.

The outcome, which comes ahead of the Bank of Japan’s next policy meeting on July 30-31, complicates its decision on how soon to raise interest rates.

The headline sentiment index for big manufacturers rose to +13 in June from +11 in March, slightly exceeding a median market forecast for a reading of +12, the survey showed on Monday.

An index measuring big non-manufacturers’ sentiment stood at +33, matching market forecasts and down from +34 in the previous quarter.

Big firms plan to raise capital expenditure by 11.1% in the current fiscal year ending in March 2025, compared with 4.0% seen in the previous tankan survey. It compared with a median market forecast for a 13.9% increase.

The BOJ ended eight years of negative interest rates and other remnants of its radical monetary stimulus in March as it judged that sustained achievement of its 2% inflation target has come into sight.

Many market players expect the BOJ to raise interest rates again from current near-zero levels this year, but remain divided on how soon it will come.

BOJ Governor Kazuo Ueda has said the central bank will raise rates further if there is enough evidence that underlying inflation will durably meet its 2% target, as it projects.

While inflation has remained above the BOJ’s target for two years, Japan’s fragile economic recovery is clouding its rate hike path.

Japan’s economy shrank an annualized 1.8% in the first quarter as companies and households reduced spending. While analysts expect growth to rebound in the current quarter, the weak yen is weighing on household sentiment by pushing up the cost of imports for fuel and food.