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Japan’s Business Confidence Increases for 2nd Straight Quarter

Business sentiment among Japan’s manufacturers has increased for the 2nd straight quarter. A weak yen has helped boost corporate profits to a record high. The Bank of Japan’s (BOJ) Tankan report is a survey given quarterly to more than 10,000 companies. It gave a reading of 12 this quarter, compared to 10 in the previous quarter. This is the highest reading since December 2015.

Takeshi Minami, chief economist at Norinchukin Research Institute, said, “The results simply confirm the economy is recovering. Exports are picking up and that’s having a positive impact on production and capital investment. Corporate earnings are good.”

Bank of Japan data shows that companies are positive on their capital expenditure plans. Also, Service sector’s outlook has improved for the first time in six quarters. The survey revealed that manufacturers were planning to boost capital spending by 0.6% in the fiscal year ending in March 2018. The results beat the forecast for a 0.1% drop in capital spending.

Yuichiro Nagai, an economist at Barclays Securities, said, “The tankan showed a balanced improvement in corporate sentiment at manufacturers and service-sector firms. Overall, the results support the BOK’s rosy view on the economy.”

However, the results were below the forecast of economists polled by the Wall Street Journal. Their consensus was 15. The survey also showed that Japanese firms are expecting deterioration in business conditions in the next quarter because of global trade risks such as Brexit and Trump’s protectionist initiatives.

Also, the businesses also forecast more weakness for the Japanese yen. They predict that the yen will reach 108.43 to a U.S. dollar. A weak yen is good for Japanese exporters as it makes their exports more competitive.

Marcel Thieliant, Senior Japan economist at Capital Economics, said, “While today’s Tankan survey showed that business conditions for large manufacturers did not improve as much as most had anticipated, the survey suggests that growth will remain healthy for now.”

Norio Miyagawa, Senior economist at Mizuho Securities, said, “There has been talk about the risks of protectionism, but so far Japanese companies are not taking any specific steps related to this. 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.”

Japan’s economy has been recovering well the recent months as global demand continues to improve. Inflation is expected to increase in the 2nd half of the year, and many analysts forecast the BOJ of cutting back on monetary stimulus measures.

Takashi Shiono, an economist at Credit Suisse Group AG, said, “The rise in confidence wasn’t as strong as expected and that’s a sign of cautiousness amongst companies. The ‘Trump rally’ is unwinding and the outlook for the U.S. economy is increasingly unclear.”

Japanese firms have a significant stash of cash pile and are still hesitant to put those into investment and wages. Wage negotiations early this year between the biggest Japanese companies and labor unions suggest pay increases are likely to be small this year.

Categorized as: Business

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