By Makiko Yamazaki and Leika Kihara
TOKYO (Multibagger) - Japanese big manufacturers' business sentiment remained stable in the three months to September, according to a closely watched central bank survey released on Tuesday. This indicates that the economy is continuing to recover despite challenges in global growth.
The survey, known as the Bank of Japan's (BOJ) "tankan," also revealed that big non-manufacturers' sentiment improved, highlighting the strength of domestic demand.
The BOJ will use the tankan results to guide its monetary policy decisions and to provide fresh forecasts for growth and inflation at its upcoming meeting on Oct. 30-31.
In September, the headline index for big manufacturers' confidence was +13, unchanged from June and in line with market expectations. Meanwhile, the sentiment index for big non-manufacturers rose to +34 from +33 in June, surpassing market forecasts.
According to the tankan, big companies are planning to increase capital spending by 10.6% in the fiscal year ending March 2025, slightly lower than the market's prediction of an 11.9% gain.
Looking ahead, big manufacturers anticipate improved conditions in the next three months, while non-manufacturers expect conditions to worsen, as indicated by the tankan.
The BOJ had raised its short-term policy rate to 0.25% in July, following the end of negative interest rates in March. Governor Kazuo Ueda has stated that the central bank will continue to raise rates if companies raise prices and wages due to optimism about the future, in order to sustainably achieve the 2% inflation target.
Japan's economy expanded by 2.9% in the second quarter, driven by steady wage increases supporting consumer spending. However, soft demand in China and slowing growth in the U.S. present challenges for the export-reliant country's outlook.
The tankan's sentiment diffusion indexes are calculated by subtracting the number of respondents reporting poor conditions from those reporting good conditions. A positive reading indicates that optimists outnumber pessimists.
Analysis:
The BOJ tankan survey results show that Japanese businesses are cautiously optimistic about the future, with manufacturers and non-manufacturers both expressing confidence in domestic demand. This could lead to increased capital spending and further economic growth. However, challenges such as global economic weakness and soft demand from key trading partners pose risks to Japan's export-driven economy. Investors should monitor these factors closely to make informed decisions about their investments in Japanese markets.