According to a recent survey by the central bank, business confidence in Japan has improved in the third quarter. This indicates that the country’s economy is on track for a sustainable recovery, despite concerns about a global slowdown causing caution among policymakers.
The positive outlook of major non-manufacturing companies reached levels not seen since 1991, during Japan’s asset-inflation bubble. This indicates that retailers are experiencing a boost in sales as pandemic restrictions are lifted.
The survey revealed that companies maintained their strong spending intentions and grappled with a limited job market, potentially paving the way for the Bank of Japan (BoJ) to gradually reduce its significant economic support.
According to the BoJ’s highly watched tankan survey, the confidence index for major manufacturers increased from 5 in June to 9 in September. This surpassed expectations of a reading of 6 and is the second consecutive quarter of improvement.
The latest survey revealed that the large non-manufacturing index increased from 23 to 27, surpassing the predicted value of 24. This marks the sixth consecutive quarter of improvement and is the highest recorded since November 1991.
Marcel Thieliant, the head of Asia-Pacific at Capital Economics, stated that the recent tankan survey has shown a stronger-than-anticipated improvement. This indicates that the economy is likely to keep growing at a rate higher than expected, leading to an increase in staff shortages and ongoing price inflation.
According to a spokesperson from the BoJ, numerous large corporations reported being able to transfer increased expenses to customers, resulting in a positive shift in the overall business outlook.
According to the official, a rise in car production and a decrease in costs of raw materials contributed to an improved outlook. However, a few smaller companies reported difficulties in raising prices.
Large companies anticipate a 13.6% rise in capital investment for the fiscal year ending in March 2024, in line with market expectations. This follows an 11.7% increase in fiscal 2022, as reported by the tankan survey.
A recent indicator measuring companies’ perceptions of the labor market has shown the strongest results since 2019 for major manufacturers and since 1992 for non-manufacturers, indicating a potential increase in wages.
According to the survey, major manufacturers anticipate an improvement in conditions in the next three months. However, the outlook is uncertain due to slow global demand and indications of a weakening economy in China.
According to Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, the tankan report indicates that Japan is expected to experience growth driven by domestic demand. However, there are concerns about the international outlook, specifically whether the US economy will be able to achieve a smooth decline.
The BoJ policymakers will carefully examine the tankan to determine if the economy is ready to begin increasing interest rates.
According to the tankan report, businesses anticipate a 2.5% increase in prices over the next year, a 2.2% increase in three years, and a 2.1% increase in five years. These projections are similar to those made three months ago.
In the April-June period, Japan’s economy grew by 4.8% on an annualized basis, driven by strong exports despite low consumption. However, experts predict a slight decline in the July-September quarter due to sluggish international demand impacting exports.
The success of businesses and their outlook for the future will determine if salaries will continue to increase alongside inflation in the coming year, and set the stage for the Bank of Japan to gradually eliminate its extensive financial support.