November 9, 2023
In October, business confidence among major Japanese manufacturers remained subdued, with a flat mood, as challenges from the global economy overshadowed a domestic demand rebound. The strong possibility of higher U.S. interest rates has put pressure on the Japanese yen, negatively impacting the country’s terms of trade. Additionally, concerns about a potential spike in oil prices are casting a shadow on overall sentiment.
While Japan’s trade-dependent economy has been gradually recovering from the pandemic, thanks in part to the return of tourists from China and other regions, downside risks from the global economic landscape have weighed on confidence. This has created a challenging environment for the nation.
The Reuters Tankan poll, tracking the Bank of Japan’s (BOJ) closely monitored tankan quarterly survey, reported that the mood among manufacturers remained flat at +4 index points in October. However, expectations suggest a slight improvement in the next three months. Meanwhile, the service sector saw a modest increase, rising to +24 from +23 the previous month, underscoring the precarious nature of corporate morale, as it was anticipated to decline to +20.
A manager from an industrial ceramic maker explained, “Our business conditions are not so good because there’s a divide among those who benefit from the recovery in car production and those who suffer from China’s overall economic slowdown.” The manager also expressed concerns about high uncertainty regarding the economic outlook.
In a poll of 502 large and mid-sized companies, with 249 firms responding, many reported the rising cost of doing business due to surging raw material prices, exacerbated by the yen’s depreciation. These respondents chose to remain anonymous.
Although the BOJ’s tankan survey, released on October 2, indicated an improvement in Japan’s business sentiment in the third quarter, signaling the potential for a lasting economic recovery, the continued global economic slowdown has left policymakers cautious about the future outlook.
The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones, where a positive reading indicates that optimists outnumber pessimists.
Source: Reuters
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