By Noriyuki Suzuki,
Sentiment among major Japanese manufacturers improved for the third straight quarter in December as automakers became more optimistic, while a revival of inbound tourism helped boost nonmanufacturers' confidence to a three-decade high, the Bank of Japan said Wednesday.
The reading of the key index, which measures confidence among companies such as those in the auto and electronics sectors, rose to 12 in December from 9 three months earlier, beating the average market forecast of an improvement to 10 in a Kyodo News survey.
Marking the seventh straight quarter of increase, the index for large nonmanufacturers including the service sector improved to 30, a level not seen since November 1991, from 27 in the September survey.
The closely-watched Tankan survey showed the resilience of the Japanese economy after its growth stalled this summer, though both sectors are less sanguine about the outlook.
A growing number of companies have been able to pass on higher raw material costs, and the auto sector, the backbone of the export-driven economy, has seen increased output after it struggled to cope with parts shortages.
Pent-up demand has continued to support service providers that lagged behind manufacturers in their recovery from the fallout caused by COVID-19, sending confidence among hotel and restaurant operators to its highest-ever level. Still, the survey suggests labor shortages are casting a pall over the service sector.
"Business sentiment remains solid and capital investment plans remain bullish. But this doesn't mean the BOJ can shift from its ultralow interest rate policy because there is uncertainty over the outlook, especially when the U.S. economy is seen headed toward a recession," said Saisuke Sakai, a senior economist at Mizuho Research & Technologies.
For the current quarter through December, economists expect the world's third-largest economy to rebound, but concerns remain about the negative impact of aggressive rate hikes in the United States and Europe and a slowdown in China, a major trading partner for Japan.
Looking ahead to the next three-month period, both manufacturers and nonmanufacturers are less positive, with sentiment expected to worsen by four points to 8 and six points to 24, respectively.
Japanese companies plan to increase investment by 12.8 percent in fiscal 2023 from the previous year, according to the Tankan, a slight cut from 13.0 percent in the previous survey.
While Japanese firms have retained their proactive stance on capital spending, this has yet to translate into strong results. Sakai said part of the reason is that many firms are struggling to cope with labor shortages and they remain cautious about ramping up investment to buy new equipment and build new facilities.
"The capital spending plans will likely be revised downward in the coming months. With weak economic growth, falling real wages and slower inflation, the chances of a policy change by the BOJ are still low," Sakai added.
The results from the Tankan are among the materials to be assessed by the BOJ at a policy-setting meeting next week.
Japanese firms expect prices to rise over 2 percent a year from now, three years and five years ahead, though the central bank has maintained its view that the nation is still some way off stably achieving its wage growth-driven 2 percent inflation target.
The assumed dollar-yen rate for fiscal 2023 was revised up to 139.35 yen from 135.75 yen. It is still lower than the 145 yen zone where the U.S. currency was trading on Wednesday.
The euro-yen rate was also raised to 148.80 yen from 144.62 yen, compared with around 157 yen at present.
The BOJ surveyed 9,072 companies, of which 99.3 percent responded between Nov. 9 and Tuesday.
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