June sentiment index of large producers +5 vs +1 in March
Large non-manufacturing indicators hit +23 with +22 in March
Large companies expect capex to grow by 13.4% in FY2023.
(Includes analyst quotes, inflation)
By Leica Kihara and Tetsushi Kajimoto
TOKYO, July 3 (Reuters) – Japan’s business sentiment improved in the second quarter as raw material costs hit record highs and an outbreak lifted factory output and consumption, a central bank survey showed the economy is on course for a sustained recovery. .
Firms are increasing capital spending and project inflation is expected to remain above the Bank of Japan’s 2% target five years ago, the quarterly “Tankan” showed, hoping conditions will gradually fall into place for policymakers to end their massive monetary stimulus.
A headline index measuring sentiment at major manufacturers stood at 5 in June, after hitting a two-year low and 1 in March, as growing companies recover from rising raw material prices and supply cuts. The reading, plus the median market forecast of 3, was the highest since December 2022.
It rose to 23 in June from 22 three months ago.
“The results were slightly stronger than expected, helped by recovery in the auto and energy sectors. Strong capital spending led to optimism among machine makers,” said Atushi Takeda, chief economist at the Itotsu Economic Research Institute.
“Tankan confirmed the view that the Japanese economy is on a moderate recovery.”
Large manufacturers expect business conditions to improve three months ahead, while non-manufacturers prepare for a deterioration, the survey indicated.
Large firms plan to increase capital spending by 13.4 percent in the fiscal year ending in March 2024, higher than the 3.2 percent increase projected in the March survey. The increase was a 10.1% increase compared to the median market forecast.
Tankan also revealed that companies expect inflation to reach 2.6% per year, down from the 2.8% forecast in March.
Inflation in three years at 2.2%, compared to 2.3% in March, and 2.1% after five years, unchanged from the forecast in March, the study showed.
Japan’s economy grew 2.7 percent in the first quarter and analysts expect expansion to continue.
BOJ Governor Kazuo Yuda has repeatedly stressed the need to keep monetary policy ultra-loose until inflation hits the bank’s 2% target, along with strong wage growth.
(Reporting by Sri Navaratnam Editing by Leka Kihara and Tetsushi Kajimoto)