Japan's factory mood hits 3-1/2-year high: Reuters Tankan

[TOKYO] Confidence among Japanese manufacturers hit a more than three-and-half-year high in August and service-sector sentiment turned positive, the Reuters Tankan poll showed, suggesting the economy was shaking off the drag from the Covid-19 slump.

The monthly poll, which tracks the Bank of Japan's (BOJ) closely watched tankan quarterly survey, found that manufacturers' mood would slip a little while staying buoyant in three months and service-sector sentiment would recover further.

The poll follows a gross domestic product report this week that showed the world's third-largest economy grew an annualised 1.3 per cent in April-June, thanks to brisk exports and stronger-than-expected consumption.

In the Reuters poll of 503 big and medium-sized companies, in which 252 firms responded on condition of anonymity, managers expressed optimism over a demand recovery to pre-coronavirus levels, due to strong overseas orders for products such as high-tech goods.

"The semiconductor market is booming and demand for related materials is strong," a manager at a ceramics maker wrote in the poll, adding its industrial products and car parts businesses were benefiting from it.

The Reuters Tankan sentiment index for manufacturers rose to 33 from 25 in July, its highest since January 2018, the poll conducted Aug 4-16 showed. The service index rose to 5 from minus 3 the previous month, its highest since February last year.

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Some managers, however, worried about uncertainty from the virus and the impact of rising raw material costs and a prolonged state of emergency in parts of Japan that now covers nearly 60 per cent of the population.

"Raw material prices are rising worldwide and there is uncertainty over the outlook," a manager at a chemical maker wrote in the survey.

The Reuters Tankan poll showed manufacturers' business confidence was seen falling to 31 in November, while that of service-sector firms was expected to rise to 13.

"Conditions aren't bad considering the coronavirus, but they aren't at a level that should have been expected either," a manager at a food maker said.

The BOJ's own "tankan" business survey released in July showed business confidence improved to a two-and-half-year high, while service-sector sentiment turned positive for the first time in five quarters.

The Reuters Tankan index readings are calculated by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists.

REUTERS