An unexpectedly strong rise in confidence at large Japanese manufacturers has boosted hopes for a solid recovery next year from the Covid-19 economic shock even as the country’s virus outbreak continued to spread.
The Bank of Japan’s quarterly Tankan survey improved to a level of -10 in the final quarter of the year, compared with -27 in the third quarter, and beating analyst expectations for a reading of -15.
The final quarter result is well above the readings of -30 or -40 normally seen at the trough of a recession, suggesting that Asia’s largest advanced economy is already on the road to recovery, with reinvigorated demand in its export markets around the world.
“Companies do seem to be clearly looking over the valley to a much improved 2021, both domestically and internationally, greatly due, of course, to the distribution of vaccines,” said John Vail, chief global strategist at Nikko Asset Management in Tokyo.
The BoJ regards the Tankan as one of the highest-quality economic indicators in Japan and its most reliable guide to the state of the business cycle. Covering almost 10,000 companies, the survey has a response rate of more than 99 per cent.
The survey asks companies whether conditions are “favourable” or “unfavourable” and then one response is subtracted from the other to give an index that can range, in theory, from -100 to +100. Positive readings usual indicate an expanding economy.
The auto industry reported a strong rebound in confidence, with the index up 48 points to -13, while sentiment rose across the machinery and materials sectors.
But the situation remained difficult in sectors directly affected by the pandemic. The rating for accommodation and restaurants gained 21 points but was still mired at -66.
Covid-19 cases have continued to rise across Japan, with new daily diagnoses surpassing 3,000 for the first time on Saturday. Government ministers have said they feel a “sense of crisis” but have been reluctant to take any radical measures to suppress the outbreak.
A much-criticised campaign to promote domestic tourism remains in place. Some local governments have requested businesses to close or curtail hours but, unlike in the spring, there has been no national state of emergency declaration.
“The number of new infections remains at a record level and there is still a need for extreme vigilance,” said Katsunobu Kato, chief cabinet secretary. Mr Kato said the government would consider excluding some prefectures from the tourism campaign.
Coronavirus business update
How is coronavirus taking its toll on markets, business, and our everyday lives and workplaces? Stay briefed with our coronavirus newsletter.
Sign up here
Source: Economy - ft.com
