Japan business sentiment hits Abenomics peak
Tankan index climbs as confidence rises at large manufacturers
Business confidence in Japan has bounced back to its highest since early 2014 as growth accelerates.
The Bank of Japan’s Tankan index for large manufacturers — a closely watched indicator of the economy — rose from +12 to +17 in the second quarter of 2017. That matches its peak in the years since Prime Minister Shinzo Abe’s stimulus began in 2013. A premature consumption tax rise in April 2014 hit economic growth.
Acceleration in the Tankan suggests large companies are becoming more optimistic about the economy as exports rebound and a tight jobs market lifts consumption.
The survey offers a much-needed boost to Mr Abe after his party suffered a heavy defeat in elections to the Tokyo city assembly at the weekend.
However, business confidence is still short of the +20 levels that prevailed from 2004 to 2007 — let alone the +40 it reached during Japan’s 1980s boom — suggesting the corporate sector will remain cautious about new investment for now.
“The broad-based rise in business sentiment is consistent with our and the BoJ’s bullish view on Japan’s current economy,” said Masamichi Adachi, an economist at JPMorgan in Tokyo.
The yen was little changed at ¥112.3 in the wake of the numbers, while the Topix share index rose slightly to 1,614.
The Tankan is a quarterly survey, similar to ISM polls of purchasing managers in the US. It samples more than 10,000 companies with a response rate of nearly 100 per cent.
Compilers subtract the percentage of respondents reporting bad business conditions from those reporting good to give indices ranging from -100 to +100.
Japan’s unreliable statistics on consumption and output, which are prone to large revisions, mean the BoJ relies heavily on the Tankan to track the business cycle.
Sentiment rose most strongly in basic industries, reflecting greater optimism about the global economy. The petroleum and coal sector rose 19 points to +25, iron and steel was up 16 points to +16, and shipbuilding rose 10 points to -11.
By contrast, the automobile sector was two points weaker at +16 amid signs that the US car replacement cycle has passed its peak.
The index for large service companies rose three points to +23. Construction hit a new high, up 5 points at +48, but that was offset by gas and electricity utilities, which fell 8 points to -3 as the introduction of competition hits established players.
The Tankan index for all industries of all sizes edged up two points to +12. Companies reported staff shortages. The overall index for labour availability held steady at -25, with businesses forecasting a deterioration to -29.