Japan manufacturers remain optimistic in June

Business confidence levels of Japanese manufacturers and service sector firms were little changed in June from the prior month, highlighting the fragile and uneven state of the country’s coronavirus recovery.

While manufacturers’ mood remained positive thanks to strong overseas demand, it was forecast to be slightly lower three months from this month, which tracks the Bank of Japan’s (BOJ) closely watched tankan quarterly survey.

The Reuters Tankan sentiment index for manufacturers edged up to 22 from 21 in May, while the mood in the service sector was more dour. The service index was flat, down from 2 the prior month, the poll conducted June 3-14 showed. (For a detailed table of the results, click )

The Reuters Tankan index readings are calculated by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists.

Among manufacturers, buoyant sentiment at chemical and metal product makers offset less favourable conditions in sectors such as textiles and paper, according to the survey of 481 large- and mid-sized companies, in which 238 firms responded on condition of anonymity.

“We’re seeing a positive impact from growing overseas demand and in electronic materials-related industries,” a manager at a chemical products maker said.

The poll comes a day before the BOJ is set to end a June 17-18 policy meeting where it may extend its pandemic-relief programmes to support the country’s economic recovery, which would help solidify the view it will lag other central banks in cutting crisis-mode policies.

The BOJ’s own “tankan” business survey is next due on July 1, weeks before Tokyo is set to host the Olympic Games later that month amid ongoing concerns the event could fuel a spike in COVID-19 infections.

Japan’s economy is expected to narrowly avoid falling into recession this quarter, but is unlikely to see the sharp growth rates of the United States, largely due to extended coronavirus curbs and Tokyo’s late vaccine rollout.

The Reuters Tankan survey also highlighted the hit that firms were feeling from the health crisis, with a manager at a wholesaler describing the recovery from the coronavirus blow as still being “sluggish”.

Another manager, at a real estate firm, also remained negative. “Demand in aviation continues to decline due to the impact of the coronavirus,” the manager wrote in the survey.

Manufacturers’ business confidence was seen a notch lower at 21 in September, while that of service-sector firms was expected to rise to 10, the survey showed.