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Japan business mood improves in Q2 to 2-1/2-year high – tankan By Reuters

© Reuters. FILE PHOTO: A man walks in front of containers and cranes at an industrial port in Tokyo, Japan September 29, 2017. REUTERS/Toru Hanai

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) -Japanese big manufacturers’ business confidence improved in the second quarter to hit a two-and-half-year high, a central bank survey showed, a sign solid global demand was helping the economy emerge from the coronavirus pandemic-induced doldrums.

Service-sector sentiment also turned positive for the first time in five quarters, suggesting that the economic recovery was broadening even as Japan struggles to contain a fresh wave of coronavirus infections.

The headline index for big manufacturers’ sentiment jumped to plus 14 from plus 5 in March, marking the fourth consecutive quarter of improvement and posting the highest level since December 2018, the Bank of Japan’s (BOJ) “tankan” survey for June showed on Thursday.

“Exports and output continue to improve, which is helping sentiment improve for most manufacturing sectors. The auto sector, however, saw sentiment worsen due to shortages in semiconductor chips,” a BOJ official told a briefing.

An index gauging big non-manufacturers’ mood stood at plus 1, against -1 in the previous survey, marking the highest reading since March 2020.

Big companies expect capital expenditure to rise 9.6% in the current fiscal year ending in March, after a 8.3% drop in the previous year, the survey showed.

Japan’s economy shrank an annualised 3.9% in the first quarter and likely grew only modestly in the April-June period as state-of-emergency curbs to prevent the spread of COVID-19 cooled consumption.

While the curbs have been lifted for most areas, many analysts expect consumption to remain a weak spot in Japan’s export-driven recovery as slow vaccinations keep households from boosting spending on leisure and dining out.

The tankan will be among factors the BOJ will scrutinise at its interest rate review on July 15-16, when it will produce fresh quarterly growth and inflation projections.

The tankan sentiment index readings are calculated by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists.

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