Japanese Manufacturers’ Sentiment Sees a Boost
After a brief dip last month, Japanese manufacturers’ confidence has rebounded in January, thanks to improved conditions in the materials sector. However, their outlook remains cautious due to uncertainty surrounding the policies of the new US administration.
A Positive Sign for the Bank of Japan
The upswing in business confidence is a welcome development for the Bank of Japan (BOJ), which has been advocating for wage-driven economic growth to achieve stable inflation around its 2% target. This could justify a further rate hike as early as the BOJ’s next policy meeting on January 23-24.
Survey Highlights
A Reuters Tankan poll of 505 non-financial major Japanese firms found that manufacturers’ sentiment rose to plus 2 in January, up from minus 1 in the previous month. The survey, which was conducted between December 24 and January 10, received responses from 235 firms on condition of anonymity.
Sector-Specific Trends
The recovery in sentiment was most pronounced among upstream industries such as steel, oil refinery, and chemicals, which benefited from a pickup in global demand. In contrast, machinery sectors like autos and electronics saw their sentiment deteriorate in January.
Caution Remains
Despite the improvement in sentiment, manufacturers remain cautious about the future. Even among sectors that turned more optimistic, respondents cited concerns about the impact of Japanese automakers’ struggles in China and Southeast Asia, as well as a delayed recovery in market conditions for semiconductors. Domestic demand in Japan remains weak, according to multiple chemical firm managers.
Uncertainty Surrounding US Policies
The ambivalence among Japanese manufacturers echoes the BOJ’s own tankan poll result in December, which showed a slight improvement in current conditions but a deteriorating outlook. Managers are uncertain about the future of US government policies, particularly on international trade, with President-elect Donald Trump taking office on January 20.
Service Sector Sees Modest Growth
Meanwhile, the service-sector index edged up to plus 31 in January from 30 in the previous month. The index is expected to remain flat at 31 in April. Retail company managers reported a steady increase in customer visits, including inbound tourists, while construction firm managers noted some progress in passing on costs to service prices to secure profits despite a labor shortage.
Wage Hikes and Inflation
Recent data showed wage hikes broadening in Japan, with the inflation rate staying above the BOJ’s 2% target. This has cemented market expectations that an interest rate hike is possible in the near term, even as consumer spending and factory output remain soft.
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