Business sentiment among big Japanese manufacturers improved in September from an 11-year low but remains deep in the negative as the coronavirus pandemic continues to cast a pall over the economy, the Bank of Japan's Tankan survey showed Thursday.
The key index measuring confidence among companies such as automobile and electronics makers rose to minus 27 in September from minus 34 in the June survey, the lowest since June 2009. It compares with the average market forecast of minus 23, calculated via a Kyodo News poll.
The index last rose in December 2017, meaning that the September improvement is the first in 11 quarters.
The index for large nonmanufacturers, including the service sector, improved to minus 12 from minus 17. The reading was worse than the market forecast of minus 8.
The results could give some relief to Prime Minister Yoshihide Suga, who took office in mid-September with a pledge to revitalize the economy while keeping the spread of the novel coronavirus in check.
The Tankan index represents the percentage of companies reporting favorable conditions minus the percentage reporting unfavorable ones.
"Business sentiment has already hit bottom, and it has entered a recovery phase although the indexes are still at low levels," said Shunsuke Kobayashi, chief economist at Mizuho Securities Co.
China's relatively speedy recovery from the initial shocks from the coronavirus pandemic helped improve the mood, but the government and the BOJ will have to maintain their support as the outlook for jobs and corporate spending remains clouded, he added.
Uncertainty over the pandemic is apparently making many companies cautious about their future prospects.
In the next quarter, the index for manufacturers is expected to improve but stay in the negative at minus 17, while that for nonmanufacturers is projected to recover slightly to minus 11, the BOJ survey showed.
Large companies, defined as those with 1 billion yen ($9.5 million) or more in capital, plan to increase capital spending by 1.4 percent in the year through next March from a year earlier, slower than the 3.2 percent increase projected in the June survey.
The BOJ said after a policy meeting last month that exports and industrial production are picking up, but the economy is still in a "severe" situation as the central bank maintained both its ultraloose monetary policy and emergency measures for companies facing financial struggles.
Economists expect the world's third-largest economy to rebound in the July-September quarter after a record contraction in the preceding three months when activity was depressed during a state of emergency over the virus between April and May.
Japanese automakers have increased output to keep pace with a recovery in overseas markets such as China.
The Tankan survey showed sentiment among automakers, which play an integral part in Japan's export-driven economy, rose to minus 61 from minus 72. Other auto-related sectors such as iron and steel, and textile makers also reported a slight pickup.
Heightened tensions between Beijing and Washington, however, remain a concern for Japanese firms in the run-up to the Nov. 3 U.S. presidential election.
The Trump administration has tightened the screws on China, restricting China's Huawei Technologies Co. from obtaining chips developed or produced using U.S. software or technology.
The index for production machinery makers, which include those for semiconductors, was at minus 43. Many ship such machinery to China.
"With the United States and China in a new 'Cold War,' there could be a pause (in ratcheting up tensions), but it's hard to expect a reversal (of restrictive measures), which would place Japan in a difficult position," Kobayashi added.
Among nonmanufacturers, the retail sector reported a 16-point rebound to 18, reflecting a gradual return to normal despite the coronavirus crisis.
Sentiment among hotel and restaurant operators, however, was at minus 87 despite a 4-point increase as people refrained from dining out, and the spread of the virus hit tourism.
Companies in the survey expect the U.S. dollar to trade at 107.34 yen in fiscal 2020, slightly lower than the assumed rate of 107.87 yen in the previous survey.
The BOJ surveyed 9,537 companies, of which 99.3 percent responded over a roughly one-month period through Wednesday.