Japanese big manufacturers’ business confidence improved for a second straight quarter to hit a one-and-a-half-year high in March, a closely watched central bank survey showed, a sign the benefits of an export-driven economic recovery were broadening.
Service-sector sentiment improved for the first time in six quarters and companies remained upbeat on their capital expenditure plans, the Bank of Japan’s “tankan” survey showed, offering hope the economic recovery will gather momentum in coming months. The data, which will be among factors the BOJ will scrutinise at its next rate review on April 26-27, reinforces a dominant market view the central bank’s next policy move would be to reduce rather than expand monetary stimulus.
“The tankan showed a balanced improvement in corporate sentiment at manufacturers and service-sector firms,” said Yuichiro Nagai, an economist at Barclays Securities.
“Overall, the results support the BOJ’s rosy view on the economy.”
The headline index measuring big manufacturers’ business sentiment rose to plus 12 in March from plus 10 three months ago, the tankan showed, falling slightly short of market forecasts but marking the highest reading since December 2015. The index gauging big non-manufacturers’ sentiment improved two points from plus 20, rising for the first time in six quarters and hitting the highest level since March 2016, the survey showed.
Big manufacturers and non-manufacturers expect business conditions to deteriorate slightly in the coming three months, as risks to global trade such as Britain’s decision to leave the EU and US President Donald Trump’s protectionist statements cloud the outlook.
Still, the survey found big firms plan to increase capital spending by 0.6 per cent in the fiscal year ending in March 2018, compared with a median market forecast for a 0.1 per cent drop.
“There has been talk about the risks of protectionism, but so far Japanese companies are not taking any specific steps related to this,” said Norio Miyagawa, senior economist at Mizuho Securities.
“This tankan will reinforce expectations that the BOJ is on hold for the time being. We certainly don’t see the need to ease or tighten policy,” he said.
Japan’s economy has shown signs of life in recent months, with exports and factory output benefitting from a recovery in global demand.
With inflation expected to accelerate later this year, a growing number of analysts now predict the BOJ’s next move would be to start scaling back its massive monetary stimulus.
The tankan’s sentiment indexes are derived by subtracting the number of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists.