Japanese business sentiment rebounds despite Covid-19 issues

Japanese business sentiment rebounded in the first quarter of 2021 despite the renewal of the Covid-19 state of emergency, suggesting Asia’s largest advanced economy will quickly recover from the pandemic.

The Bank of Japan Tankan Index for major manufacturers rose 15 points to a reading of plus 5, well ahead of analysts’ expectations that it would stay in negative territory at minus 2.

The optimistic sentiment of Japanese industrial companies suggested that the global vaccine deployment, robust growth in China and the prospect of a great American stimulation improved the business environment for exporters.

The positive outlook was particularly striking given that Japan’s largest cities were partially locked since mid-January, office staff have requested to work from home and restaurants have closed at 8 p.m.

the Quarterly Tankan index is considered one of the best economic indicators in Japan and the Bank of Japan is monitoring it closely to keep up with the business cycle. The survey covers nearly 10,000 companies with a response rate of 99%.

Companies were asked whether the trading conditions were favorable or unfavorable, the latter measure being subtracted from the former. This results in an index that can range from minus 100 to plus 100, with readings above 0 suggesting positive trading conditions.

Japanese companies were less exuberant than their American counterparts and more in tune with their European counterparts, said John Vail, chief global strategist at Nikko Asset Management. “Japan and Europe experienced headwinds until March,” he said.

“Improvements are expected to be rapid over the next few quarters, although somewhat hampered by the shortage of automotive semiconductors,” he added.

A fire last month at a Renesas Electronics factory north of Tokyo has exacerbated a global chip shortage that is hampering automotive production.

Cyclical industries reported a strong rebound, with sentiment in the oil sector dropping from minus 19 to plus 19, iron and steel dropping from minus 25 to minus 5 and chemicals dropping from minus 5 to plus 5 13 to plus 10, while production machines – which export heavily to China – have gone from minus 21 to plus 8.

The recovery in the services sector was more subdued, with general sentiment falling from minus 5 to minus 1. Construction and business services reported strong figures, but the new state of emergency hit hotels and restaurants , where the feeling went from minus 66 to minus 81.

The companies are forecasting a 3% increase in investment this year and an exchange rate of around 106 yen to the dollar, compared to a current rate above 110 yen. A weaker currency and strong investment plans should both stimulate the economy Later in the year.

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