Japan’s business mood hits near 2-year high in December quarter

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) – Business confidence at big Japanese manufacturers hit a near two-year high in the three months to December, a closely watched central bank survey showed, suggesting the economic conditions needed to unwind massive stimulus were falling into place.

Big non-manufacturers’ sentiment also improved to levels not since 1991, the quarterly “tankan” survey showed on Wednesday, dispelling analysts’ concerns that weak consumption could weigh on the fragile economic recovery.

“The Tankan presents a strong case for the Bank of Japan to withdraw ultra-loose monetary policy,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics, pointing to signs of tightening labour market conditions.

The headline index for big manufacturers’ mood rose to +12 in the December quarter from +9, the tankan showed, improving for the third straight quarter. It compared with a median market forecast for +10 and was the highest level since March 2022.

Big non-manufacturers’ sentiment index rose to +30 from +27, improving for the seventh straight quarter and hitting the highest level since November 1991, the survey showed. It compared with a median market forecast for a reading of +27.

The data suggests the boost to manufacturers’ profits from a weak yen, a boom in inbound tourism and pent-up demand after the end pandemic were underpinning growth in the world’s third-largest economy.

Big firms expect to increase capital expenditure by 13.5% in the current fiscal year ending in March 2024, compared with a median market forecast for a 12.4% increase, the survey showed.

But both big manufacturers and non-manufacturers expect business conditions to worsen three months ahead, the survey showed.

The tankan is among key data the BOJ will scrutinise at its policy meeting next week.

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