TOKYO, 1st July, 2024 (WAM) -- The business sentiment index for major Japanese manufacturers rose two points to 13 in June, marking the first improvement in two quarters, although rising costs cast a shadow over the outlook, Bank of Japan data showed Monday.
The index among nonmanufacturers, including service providers such as hotel operators, worsened to 33 in June from 34, the first fall in 16 quarters after a strong run of improvement mainly driven by a revival of inbound tourism, Japanese news agency Kyodo News reported. Many companies now cite concerns about inflation and labour shortages, according to the Tankan quarterly survey.
The Tankan index represents the percentage of companies reporting favourable conditions minus the percentage reporting unfavourable ones. The average market forecast for the index of large manufacturers, compiled by Kyodo News, was for an improvement to 12.
Automakers, retailers indices
The data highlighted a divergence in how well companies and sectors are coping with rising energy and raw material costs, further inflated by a weak yen.
Sentiment improved in sectors dealing with raw materials that have been able to pass on costs, such as pulp and paper, but the food and steel sectors became less optimistic due to inflation concerns.
"Business sentiment is good overall," said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc.
While the mood was still positive among automakers the index fell by one point to 12.
Sentiment among retailers, however, worsened to 19, down 12 points, with Japanese households yet to feel the impact of real wage growth due to inflation.
High import costs
The yen's persistent depreciation, particularly against the U.S dollar, means resource-poor Japan will continue to see higher import costs accelerating inflation.
A weak yen, however, is a boon to exporters because it boosts their overseas profits when repatriated. It also makes travelling to and shopping in Japan cheaper for foreign tourists.
Hotel and restaurant operators, and those providing face-to-face services, remained optimistic, despite the sector index falling slightly.
Japanese companies expect the dollar to trade at 144.77 yen in fiscal 2024, sharply higher from 141.42 yen in the previous survey in March. The dollar rose above 161 yen at one point last week, amid heightened market vigilance about possible intervention by Japanese authorities to slow the yen's sharp decline.
The Japanese economy contracted an annualised real 2.9 percent in the January-March quarter, rather than declining 1.8 percent, according to revised data released Monday, underscoring soft domestic demand.
Still, Japanese companies are planning to ramp up capital spending by 8.4 percent in the year to next March, the BOJ survey showed, after a 10.6 percent increase in fiscal 2023. The figure covers all sectors and includes small and medium-sized firms.