Japan big maker sentiment up, services highest since 1991: Tankan
TOKYO (Kyodo) -- Business confidence among major Japanese companies continued to improve in September despite concern about slowing global growth, with nonmanufacturers the most optimistic in over three decades as COVID-related bottlenecks eased, the Bank of Japan said Monday.
Sentiment among manufacturers improved for the second straight quarter to 9 in September from 5 three months earlier, buoyed by confidence among automakers recovering to a level last seen before the pandemic.
The index for large nonmanufacturers, including the service sector, rose to 27, the highest since November 1991, from 23, marking the sixth straight quarter of improvement.
Ideas:
Nonmanufacturers were hit the hardest during the pandemic and now maybe feel the economy is not turning in their favor with an increase in demand for services.
At the same time, confidence among major companies also feel the economy is heading in the right direction, or at least coming out of the pandemic storm that has plagued Japan for a few years.
At far as global growth is concerned, the US is still a strong economy and Japanese car companies and others should feel good about US growth.
The challenge will be going forward, will the Japanese economy continue to grow or will it return to some kind of stagnation situation.
Article:
The readings were stronger than the average market forecasts of 6 for manufacturers and 24 for nonmanufacturers in a Kyodo News survey.
Parts shortages that had plagued automakers continued to ease, supporting exports to key markets such as the United States even amid concern that aggressive interest rate hikes by the likes of the U.S. Federal Reserve and the European Central Bank would slow global growth.
Service providers were supported by demand from holidaymakers during the summer and a revival of inbound tourism following Japan's lifting of strict COVID-era travel restrictions.
Ideas:
The US key interest rate, attempting to lower inflation, doesn't seem to have been a factor for much of the US economy, as consumer spending, and other variables seem to remain strong or consistent.
So for Japanese exports to the US Japanese companies should feel good that Japanese products will be in demand and sell in the US.
Service providers, which were hit the hardest during the pandemic, are now seeing an increase in demand and again, but they might be some concerns about labor shortages in the service provider market.
Inbound tourism, for foreign tourists might not be as many as in 2019 but for 2023 it will be a very good year if not a record.
Article:
Sentiment among hotel and restaurant operators rose to 44, the highest since comparable data became available in 2004.
The Tankan index represents the percentage of companies reporting favorable conditions minus the percentage reporting unfavorable ones.
Japanese companies, both manufacturers and nonmanufacturers, have bullish investment plans, with a 13.0 percent increase in capital spending expected in the current fiscal year to next March.
Ideas:
Sentiment, or feel good about a situation, especially among hotel and restaurant operators of course are feeling good again after many years of the pandemic that hit their businesses very hard.
But at the same time, they might be feeling good, there might be labor shortages in the services sector as they had to lay-off some or many of their staff during the pandemic, and maybe some or many found new jobs and didn't return to the pre-pandemic jobs.
If companies do increase capital spending by 13.0 percent that would be huge increase indicating Japanese companies are feeling good about the future of the Japanese economy.
Article:
Strong domestic demand is critical for the economy to maintain its recent recovery trend, mostly led by robust exports, economists say.
With a weaker-than-expected recovery from its "zero-COVID" policy as well as its real estate woes, a slowdown in China, a key trading partner for Japan, has emerged as a downside risk to the world's third-largest economy.
Looking ahead, manufacturers' confidence is expected to improve slightly to 10 from 9, according to the BOJ. Sentiment among nonmanufacturers is forecast to worsen to 21 from 27.
Ideas:
Strong domestic demand and exports are too different categories in the Japanese economy. Normally, domestic demand has not been as strong as say domestic demand in the US or maybe even the EU, as consumers in Japan are not the big spenders like US consumers.
Exports are a major driver of the Japanese economy and should not be discounted even though it might make only 20 percent of Japan's GDP growth. But at 20 percent that is significant amount for any economy.
The Chinese economy, after the pandemic situation, might be going through a transition period and might take some time to get back to full strength. Japanese companies maybe should just try to ride out the situation, meaning not get too worried about the future related to China and just maintain business operations.
Nonmanufacturers might have had a temporary relief from the pandemic, but as inflation continues to affect many businesses in Japan, consumer demand might begin again, to weaken in the Japanese economy.
Article:
As Japan's economy expanded for the third straight quarter in April to June, labor shortages have become more evident, particularly among service providers.
The employment index fell to minus 36 for the nonmanufacturing sector, the lowest since the BOJ began compiling relevant data in 1992. A negative reading indicates labor is in short supply.
Rising energy and raw material costs have prompted companies to raise prices, keeping Japan's inflation rate above the BOJ's 2 percent target for well over a year.
Ideas:
The labor shortage situation in Japan, has been developing for a long time and Japanese businesses and the Japanese government have had decades to try and fix the situation, but they haven't done much about it.
The challenge with services providers is that many of the service provider jobs might be closer to minimum wage type jobs instead or big company good wage type jobs.
As a result, maybe many young workers don't want to work in service provider type jobs as they don't pay enough.
And or the work might be too hard or too long. For example, as a hotel I was sometimes stay at in Yokohama Japan, the front desk worker were working long shift of up to 12 hours.
Inflation has continued in Japan now for several years, and it doesn't look like its going to decrease anytime soon. If might level off or reach a plateau but its still to be factor or households and businesses, maybe into 2024.
Article:
Still, small and medium-sized firms have lagged behind bigger companies in passing on higher costs, according to the latest BOJ survey.
While the BOJ expects inflation to slow and its inflation target not to be stably and sustainably achieved in the near term, the Tankan survey painted a different picture.
Japanese companies expect inflation to remain above 2 percent a year, three years and five years from now.
Ideas:
Small and medium-sized companies might be very reluctant to pass on their higher costs to the next in their supply chains, including the in final customer, as they might fear losing customers.
While large companies, with a larger customer base, might not worry that much about losing too many customers.
The Bank of Japan, like many central banks., always try to downplay any real threat to their economy, and the Bank of Japan is no different. The goal is to keep the financial markets from panicking about the economy, so they try to downplay any major situation, such as inflation.
Yes, inflation could affect the Japanese economy for a few years despite what the BOJ says.
Article:
The BOJ is scheduled to hold a policy-setting meeting in late October, with the Tankan survey among the materials to be used in assessing the state of the economy.
The prospect of the BOJ persisting with ultralow rates is behind the yen's weakness against the U.S. dollar and euro.
The assumed dollar-yen exchange rate was lifted to 135.75 yen for fiscal 2023 from 132.43 yen, still far from its current levels near 150 yen amid caution about another round of intervention by Japanese authorities.
Ideas:
The Bank of Japan, as this point, is not going to do anything drastic or sudden, that might upset the financial or stock market at this time.
They might give some kind of response such as maintaining the current policies and take a wait and see approach as not not cause harm or panic among the financial markets.
The BOJ has not intervened in the exchange market that much, and when they have was to try and level off the dollar yen situation.
Again, the BOJ will most likely maintain it ultralow rate for sometimes until maybe inflation has run its course in Japan and then as they see the economy finally improving they might begin to think about increasing the key rate.
Article:
A weak yen inflates import costs for resource-scarce Japan while boosting the value of profits made overseas by exporters.
The BOJ surveyed 9,111 companies, of which 99.4 percent responded between Aug. 29 and Friday.
Ideas:
The Bank of Japan sees what the weak yen is doing to domestic companies but at the same time they see what the weak yen does for Japanese export companies. So maybe they look at both situations and decide what is best for the overall economy.
For example, a weak yen increases the value of Japanese exports which of course helps the Japanese current account, while imports into Japan reduces the Japanese current account.
As Japan's government debt to GDP is one of the highest in the world, the BOJ might be using the weak yen and as way to increase the current account at the expense of the domestic economy.
Have a nice day and be safe!
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