Japan Company Sentiment: Updated Feb. 18, 2024.

 

Japan big makers' sentiment improves to 12 in Dec. from 9: Bank of Japan

Article Source:  https://mainichi.jp/english/articles/20231213/p2g/00m/0bu/006000c#cxrecs_s

Article:

TOKYO (Kyodo) -- Business confidence among major Japanese manufacturers improved to 12 in December from 9 three months earlier, the Bank of Japan's Tankan survey showed Wednesday.

The reading of the key index measuring confidence among companies such as those in the auto and electronics sectors rose for the third straight quarter. The average market forecast was 10 in a Kyodo News survey.

The index for large nonmanufacturers, including the service sector, rose to 30 from 27 in the previous survey in September, a level unseen since November 1991. It marked the seventh straight quarter of increase.

Ideas:

The challenge is for the economy to keep improving and for companies to continue to remain confident. But it will be a challenge as for the most part the Japanese economy has not shown consistent growth over the past decade.

An economy is very complicated with many sectors, and as such, some sectors might show more confidence and some might show less confidence.

Moving from 30 to 17 is a good sign but its still relatively weak if 100 is the perfect number for confidence.

Even moving from 9 to 12, for that metric is a good sign, but can Japanese companies continue to show confidence in the coming months.

Article:

The continued improvement comes as 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.

Service providers, meanwhile, continued to benefit from pent-up demand following the end of COVID-related curbs.

Looking ahead to the next three-month period, however, both manufacturers and nonmanufacturers are less sanguine, with sentiment expected to worsen by four points to 8 and six points to 24, respectively.

Ideas:

This article might be a self-fulling prophecy, meaning, whenever negative news or negative estimates are given out, then companies seems seem to follow up with negative ideas and sentiments based on what they see and read.

Its the same with society, if households or consumers see negative reports about the economy, they then appear pessimistic about the economy, instead of just thinking about their individual situation, which might have anything do with what the economy is doing at the present time.

But, back the article, as is, pent-up demand is good and will probably continue for a while, until consumers begin to get inflation fatigue, which means the continued increase in prices gives them more stress.

For a long time, most Japanese companies were reluctant to pass-on their increased cost to the next in the supply chain including the final customer, for fear of losing significant customers.

Article:

Japan's economic growth stalled in the July-September quarter due to weakness in domestic demand, partly because of entrenched inflation.

For the current quarter through December, economists expect the world's third-largest economy to rebound, but uncertainty remains over slowing global growth, particularly in China, a major trading partner for Japan.

Japanese companies plan to increase investment by 12.8 percent in fiscal 2023 from the previous year, according to the Tankan, slightly cut from 13.0 percent in the previous survey.

Ideas:

And again, the Japanese economy has not proven to be strong enough to have back to back to back to back quarters of sustained economic growth. 

Weak domestic demand, might be a challenge or problem of the Bank of Japan, which, for whatever reason, doesn't use the conventional style of reducing inflation like the US and Europe.

Not looking too far ahead, but the Japanese economy didn't rebound through December, as it appears that Japan is now in a textbook defined recession, of two consecutive quarters of negative growth.

At the same time, increasing investment is a good sign of continued confidence even thought the Japanese economy might not be doing that good.

Article:

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 BOJ has maintained its view that the nation is still some way off stably achieving its wage growth-driven 2 percent inflation target.

Ideas:

The Bank of Japan has to decide what to do about the Japanese economy in the coming months.

Will the Bank of Japan continue with it ultralow economic policy, which favors Japanese exporters and international tourists who go to Japan, because of the weak yen.

Or will it begin to increase the key rate, which will smooth out the variance between the US key rate and the Japan rate, which is at zero of just under that. 

An increase in the key rate in Japan might benefit domestic economy and importers, as Japan is resource poor country and has to import much of what it needs.

Wage increases in April of 2024, will be a key indicator for the Bank of Japan as to what it will do.

But most likely the Bank of Japan is not going to do anything too drastic as it doesn't want to disrupt the financial markets with too many unexpected surprises. 

If the Bank of Japan does make any changes they will be small and almost minuscule, so that they don't cause too much harm and then begin make incremental steps over the next several months, as needed.

Have a nice day and be safe!