Japan manufacturers’ mood turns positive as economy recovers By Reuters

© Reuters. FILE PHOTO: Smoke rises from a factory during the sunset at Keihin industrial zone in Kawasaki, Japan, January 16, 2017. Picture taken January 16, 2017. REUTERS/Toru Hanai

By Tetsushi Kajimoto

TOKYO (Reuters) – Business sentiment at big Japanese manufacturers turned positive for the first time this year and service-sector morale hit a five-month high, the Reuters Tankan poll showed, providing more evidence of an economy on the mend after a COVID-led recession.

Wednesday’s monthly poll, which tracks the Bank of Japan’s closely watched tankan quarterly survey, found that manufacturers’ mood is expected to rise further over the coming three months, while the service-sector morale slid only slightly.

The solid reading may further fuel speculation that the BOJ may embark on normalising its easing policy sooner rather than later. However, governor Kazuo Ueda has repeatedly said that inflation, supported by wage hikes, needs to track at a sustainable rate of 2% before the bank could consider any such exit moves.

The sentiment index for big manufacturers stood at +6, up from April, the according to the survey of 493 firms, of which 241 responded during May 10-19.

It was the first positive reading this year and is expected to rise further in August.

Automobiles and oil refinery were among manufacturers with positive responses, as supply bottleneck on cars has eased.

“As daily life normalises after the pandemic eased, customers’ appetite for purchasing turned out high, helping department store sales in urban areas post double-digit growth,” a retailer manager wrote.

Others, however, complained about the costs of doing business, reflecting the elevated global inflation on goods and services.

“Weak yen and elevated crude pushed up costs of everything from raw materials to services, which hurt consumption,” a food processing firm’s manager wrote.

The service-sector index grew a tad from the previous month to 25, led by retailers and real estate/construction firms. The index hit its highest this year.

The world’s No. 3 economy emerged from recession in the first quarter as a post-COVID consumption rebound offset global headwinds, raising hopes for domestic demand-led growth.

Last month, the BOJ’s tankan showed manufacturers’ sentiment soured in January-March to its worst in more than two years.

Both BOJ’s and Reuters’ sentiment surveys indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A positive figure means optimists outnumber pessimists.

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