Mixed Signals from Big Businesses
The Bank of Japan's latest "tankan" report paints a mixed picture of Japan's economic landscape. While sentiment among large manufacturers has dipped, optimism among large non-manufacturing businesses is at a three-decade high.
The report, released on August 18, 2023, showed that the sentiment index for large manufacturers, including auto and electronics giants, declined for the first time in a year, falling to plus 11 from plus 13 in December. This decline is attributed to production stoppages at Daihatsu Motor Co., a Toyota subsidiary, due to improper safety tests.
In contrast, the index for large-scale non-manufacturers, including the service sector, reached a 33-year high of plus 34, up from plus 32 in December. This surge reflects the return of tourism, both overseas and domestic, which had been hampered by the pandemic. Incoming travelers have recently surpassed pre-pandemic levels.
The Japanese economy has faced challenges in recent years, including slow wage growth, deflation, and soaring energy prices. The weakening yen has also impacted some sectors, although it has boosted tourism and the earnings of exporters like Toyota and Nintendo.
The Bank of Japan raised its benchmark interest rate last month for the first time in 17 years, ending a policy of negative rates aimed at stimulating the economy. The bank maintains an inflation target of 2% and expects monetary policy to remain accommodative for some time, noting improvements in wages and corporate profits.
The tankan report's forecast for future sentiment among large manufacturers stands at 10, while the index for large non-manufacturers is 27, both lower than the current levels. This suggests a potential slowdown in the near future, but the overall picture remains uncertain.