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Business assurance in Japan has returned to pre-pandemic stage

Business assurance in Japan has returned to pre-pandemic stage

In the first quarter, Japanese major manufacturers’ assurance strengthened to the pre-pandemic stage, while corporations increased capital investment plans, indicating that the export-reliant economy was benefiting from a solid readjustment in global demand.

A central bank survey released on Thursday revealed that trust among large non-manufacturers has recovered starting from three months ago, highlighting the fading strains of the coronavirus pandemic. The data provides some solace to policymakers attempting to revive the pandemic-ravaged economy as a fourth round of infections increases concerns about the outlook.

According to the BOJ’s closely followed “tankan” report, the headline index of major manufacturers’ confidence increased to plus 5 in March from minus 10 in December, exceeding business forecasts of a flat reading.

The index rose for the third consecutive quarter, reaching its highest level since September 2019, as the gains of the global expansion extended to a wide variety of producers, including machinery and automakers.

Although hotels and restaurants tended to be affected by the pandemic, the recovery in industrial production spilled over into a larger change in conditions, which aided other service-sector businesses. As a result, the major non-manufacturers’ sentiment index improved to minus 1 in March from minus 5 in December.

With the promise of a turnaround in sight, large corporations plan to increase capital spending by 3.0 percent in the fiscal year that started in April, above industry expectations for a 1.4 percent increase. This comes on the heels of a 3.8 percent reduction in budget projections for the fiscal year that ended in March.

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Capital budget forecasts for companies of all sizes and industries increased by 0.5 percent in fiscal 2021, becoming the first optimistic forecast made at the outset of a business year since comparable statistics became available in 1984.

There were fears, though, that the recovery from the pandemic’s initial impact had peaked. According to the tankan, both major manufacturers and non-manufacturers expect market conditions to remain relatively flat in the next three months. A BOJ official told a briefing that some retailers were seeing signs of declining demand for stay-at-home items such as groceries and household electronics.

According to Taro Saito, executive research fellow at NLI Research Institute, a fire at Japanese chipmaker Renesas Electronics is exacerbating chip shortages. A tankan index that measures price movements revealed that corporations’ supply costs were increasing, which could affect their bottom lines.

Japan, like many other nations, used major monetary and fiscal stimuli over the last year to pull the economy out of a historic postwar recession. Many economists predict that the economy will contract in the first quarter, but that it will eventually recover as strong exports counter some of the weakness in demand.

The BOJ tankan indexes are calculated by subtracting the percentage of negative respondents from the percentage of positive respondents. A negative figure means that the number of pessimists outnumbers the number of optimists.