Japan’s business mood improves, boosting economic outlook

Japan’s business confidence rose in the third quarter, indicating that the ingredients for a long-term economic recovery are being put in place, even as a global downturn has policymakers concerned about the outlook, a central bank survey showed.

The attitude of large non-manufacturers improved to levels not seen since 1991, when Japan was undergoing an asset-inflation bubble, indicating that merchants were benefiting from a resurgence in consumption following the removal of influenza limits.

Companies also maintained solid spending intentions and faced a tight labor market, according to the poll, implying that circumstances for the Bank of Japan to scale off its enormous stimulus might be in place.

The headline major manufacturers’ confidence index increased to 9 in September from 5 in June, according to the Bank of Japan’s carefully monitored “tankan” survey, beating market expectations for a reading of 6 and marking the second consecutive quarter of improvement.

The index of large non-manufacturers rose to 27, up from 23, according to the poll, above the median market prediction of 24 and rising for the sixth consecutive quarter. It was the highest level since November 1991.

“The current tankan survey’s stronger-than-expected increase shows that the economy will continue to develop at an above-trend rate, adding to rising staff shortages and continuing pricing pressures,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

“Many large firms were able to pass on greater prices to consumers, resulting in an improvement in the business atmosphere,” said a BOJ official.

A resurgence in vehicle output and lower raw material costs also helped bolster the mood, while some smaller enterprises reported they were challenging to raise pricing, according to the official.

The tankan revealed that large corporations aim to boost capital spending by 13.6% in the current fiscal year, which ends in March 2024, matching market expectations, following an 11.7% growth in fiscal 2022.