Confidence Among Japan’s Manufacturers Rises to Decade High

(Bloomberg) -- Japan’s companies are more confident than they have been in years, with the global economic expansion underpinning exports and corporate profits, boosting the sentiment of firms both large and small.

  • Sentiment among large manufacturers rose to 25 from 22 three months ago (forecast 24), the highest level since 2006, according to the quarterly Tankan survey released by the Bank of Japan on Friday.
  • The outlook among large manufacturers was unchanged at 19 (forecast 22).
  • Large non-manufacturers’ sentiment was unchanged at 23.
  • Large companies across all industries say they plan to raise fixed investment by 7.4 percent in the year through March 2018 (forecast 7.5%).

Key Takeaways

A relatively weak yen and healthy global economy have fueled exports and record profits in Japan, contributing to the nation’s longest economic expansion since the mid-1990s. The seven quarters of rising gross domestic product have raised sentiment, although many households are still waiting for companies to turn earnings into significant pay increases. Despite the corporate confidence, with inflation well below the central bank’s target, there is little prospect of any change in monetary policy when the board meets next week.

Economists’ View

  • “Sentiment among manufacturers is solid," said Takeshi Minami, chief economist at Norinchukin Research Institute. “A weak yen, a global recovery and record profits are boosting their sentiment. The current economic environment is very good for business now.”
  • “Looking at small companies’ numbers, I do get the impression that there’s a well-balanced improvement,” said Yasutoshi Nagai, chief economist at Daiwa Securities Co. “At these levels you can say that the scope of economic recovery is really spreading. We had a long period where small non-manufacturers, for example, saw negative sentiment, but at the moment we’re starting to see a more established period of positive sentiment.”

Bloomberg Economics

A better-than-expected improvement in sentiment -- most striking among small firms -- underlined solid growth momentum, according to Bloomberg Economics’ Yuki Masujima. The drivers -- a weak yen and stronger external demand are fueling profits of big manufacturers. 

While the outlook points to slower momentum ahead, the result was good news for the reflation effort, he wrote in a report after the data was released. 

"Companies that are more upbeat on business conditions are more likely to increase wages. If that’s not incentive enough, a tightening labor market may eventually force their hand, as they compete for scarce workers -- the Tankan showed the labor shortage grew even more severe."

Other Details

  • Large manufacturers forecast the yen will trade at 110.18 per dollar for the fiscal year ending in March 2018.
  • Small manufacturers’ sentiment rose to 15 from 10, while that of small non-manufacturers rose to 11 from 8. Both of these were the highest since 1991.
  • The Tankan survey was conducted from Nov. 14 to Dec. 14 and surveyed 10,645 companies

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