Japan’s factory sentiment continues to improve in March: Reuters Tankan

© Reuters. FILE PHOTO: An employee wearing a protective face mask and face shield works on the automobile assembly line at the Mitsubishi Fuso Truck and Bus Corp plant in Kawasaki

By Daniel Leussink

TOKYO (Reuters) – Japanese manufacturers’ confidence increased in March, according to a survey by Reuters Tankan. Companies were more optimistic about a gradual economic recovery, although concerns about the immediate effects of the coronavirus remain.

The monthly poll found that the Bank of Japan (BOJ) quarterly Tankan poll, due April 1, will show an improvement in business sentiment among manufacturers, while that of non-manufacturers remains depressed.

Investors are closely watching the outcome of a BOJ policy review on Friday that may expire a numerical target for buying assets. This would be a turning point for Governor Haruhiko Kuroda’s massive stimulus package.

Reuters Tankan showed the sentiment index for manufacturers improved from 3 in the previous month to 6, led by chemicals and oil refineries / ceramics. 235 of 482 large and medium-sized non-financial corporations surveyed between March 3 and 12 responded on condition of anonymity.

Immediate action has been taken in Japan to halt the country’s third and deadliest wave of viruses. This has dampened consumer spending and hit the service sector particularly hard.

“Almost all accommodation and banquet reservations have been canceled due to the effects of the third wave (the virus), returning conditions to critical condition for us,” a manager of a service sector company wrote in the survey.

The non-manufacturer index rose from minus 7 in the previous month to minus 5, but remained in negative territory. According to the survey, the value rose to 5 in June and became positive.

The world’s third largest economy expanded more slowly than originally forecast in the fourth quarter of last year, the government said last week. The virus crisis caused companies to cut back on their investments.

Respondents said that economic conditions have improved due in part to solid Chinese demand.

According to the survey, the mood index for manufacturers should rise further to 15 in June.

However, some noted that the recovery was concentrated in specific sectors of the economy such as semiconductors and electrical appliance manufacturing.

“The momentum has slowed slightly, except for semiconductors, although the recovery trend continues,” said a manager of a rubber manufacturer in the survey.

Another manager of a transportation equipment manufacturer wrote: “Transportation costs have increased due to a shortage of containers and it has become difficult to secure ships, although customer orders have recovered.”

The Reuters Tankan Indices are calculated by subtracting the percentage of respondents who say conditions are bad from those who say they are good. A negative value means that pessimists are more optimists than optimists.

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