Business confidence among major Japanese manufacturers improved in June for the first time in seven quarters, rising to 5 from 1 in March, the Bank of Japan said Monday, amid the easing of COVID-related supply bottlenecks and falling raw material costs.
The reading of the key index measuring confidence among companies such as those in the auto and electronics sectors beat the average market forecast of 3 in a Kyodo News survey.
The index for large nonmanufacturers, including the service sector, rose to 23 from 20 in the previous survey, the highest reading since June 2019.
Service providers continued to benefit from the lifting of anti-coronavirus curbs and a revival of inbound tourism. The hotel and restaurant sector turned optimistic, with the index rising sharply to 36 from 0, improving to the highest level since comparable data became available in 2004.
The Tankan index represents the percentage of companies reporting favorable conditions minus the percentage reporting unfavorable ones.
"Manufacturers do not appear to be worried too much about the risks of a slowdown in overseas economies as far as the survey goes," said Shotaro Kugo, senior economist at Daiwa Institute of Research.
Automakers were more optimistic than three months earlier due to a pickup in production that had been hurt by parts shortages.
Sentiment also improved among companies manufacturing textiles, petroleum and coal products, steel and food as a surge in raw material prices paused and more firms were able to raise prices to pass on higher costs, according to the quarterly survey.
The BOJ said manufacturers' confidence is expected to improve to 9 from 5. Sentiment among nonmanufacturers, however, is forecast to worsen to 20 from 23, after rising for five quarters.
"The service sector's recovery from the COVID fallout may be peaking, as accelerating inflation will likely weigh on consumers' spending appetite," Kugo added.
Japan's economy has been recovering with modest April-June growth expected, helped by increased capital spending and resilient private consumption despite rising prices for everyday goods.
Companies in all sectors, also including small and midsize firms, plan to increase investment by 11.8 percent from the previous year, according to the survey.
Kugo said big companies are stepping up investment to drive green and digital transformation, and cope with labor shortages, adding whether smaller firms follow suit will be key.
Slowing global economic growth is a concern for Japanese companies following rapid interest rate hikes by major central banks in the United States and Europe.
The falling yen is also a mixed bag for Japan Inc. as it boosts exporters' profits made overseas in yen terms but inflates costs for importers.
The BOJ, which has remained the most dovish among the major central banks of the Group of Seven countries, will examine the latest Tankan survey results at its policy-setting meeting in late July.
While companies lifted their assumed dollar-yen exchange rate for fiscal 2023 from the March projection to 132.43 yen, it was sharply lower than the 144 yen level seen on Monday, with the Japanese currency weakening as the BOJ persists with monetary easing.
The euro-yen rate was also raised to 140.11 yen, compared with around 157 yen at present.
The BOJ surveyed 9,147 companies, of which 99.4 percent responded between May 29 and Friday.
