By Makiko Yamazaki and Leika Kihara
TOKYO (Reuters) -Japanese big manufacturers’ business sentiment was steady in the three months to September, a closely watched central bank survey showed on Tuesday, a sign the economy continues to recover despite weakness in global growth.
Big non-manufacturers’ mood improved, the Bank of Japan’s (BOJ) “tankan” survey showed, underscoring the strength of domestic demand.
The tankan will be among key factors the BOJ will scrutinise in setting monetary policy and releasing fresh growth and inflation forecasts at its next meeting on Oct. 30-31.
“Despite the yen’s rebound since mid-July, big manufacturers’ business sentiment remains unexpectedly solid,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “Overall results are positive, considering various risk factors such as a stronger yen, pressure to raise wages and downside risks to the global economy.”
The headline index for big manufacturers’ confidence stood at +13 in September against +13 in June and in line with a median market forecast.
The sentiment index for big non-manufacturers stood at +34, up from +33 in June. It compared with market forecasts for a reading of +32.
But the survey found Japanese companies remain cautious about the outlook.
While big manufacturers expect conditions to improve three months ahead, non-manufacturers project conditions to worsen, the tankan showed.
“Momentum among non-manufacturers could have already faded, including hotels and restaurants that had been boosted by inbound tourism,” said Masato Koike, senior economist at Sompo Institute Plus.
Big companies expect to increase capital spending by 10.6% in the fiscal year to March 2025, the tankan showed, smaller than a median forecast for a 11.9% gain and down from an 11.1% increase three months earlier.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was making steady progress towards durably achieving its 2% inflation target.
BOJ Governor Kazuo Ueda has said the central bank will continue to raise rates if companies keep hiking prices and wages due to optimism over the outlook, and help keep inflation durably around its 2% target.
“The tankan showed that business sentiment has not been affected by the July rate hike,” Norinchukin’s Minami said. “Given that the financial markets remain unstable, another rate hike is unlikely in October, but it’s possible in December depending on consumption data,” he added.
Japan’s economy expanded an annualised 2.9% in the second quarter as steady wage hikes underpinned consumer spending. Capital expenditure continues to grow, though soft demand in China and slowing U.S. growth cloud the outlook for the export-reliant country.
The tankan’s sentiment diffusion indexes are derived by subtracting the number of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists.