Japan’s Manufacturing Confidence Touches a Decade High

  • Sentiment for large producers improves in third quarter
  • Economic growth run may help Abe in election this month

Japan Needs More Courageous Reforms: Fujitsu Research

Confidence among Japan’s big manufacturers has improved to the highest level in a decade, underscoring Prime Minister Shinzo Abe’s run of success on the economy as he heads into an election later this month.

Highlights

  • Sentiment among large manufacturers rose to 22 from 17 three months ago, the highest level since September 2007, (estimate 18), according to the quarterly Tankan survey released by the Bank of Japan on Monday.
  • The outlook among large manufacturers rose to 19 from 15 in June (forecast 16).
  • The BOJ surveyed 10,687 companies from Aug. 29 to Sept. 29.

Key Takeaways

A weak yen and a stronger global economy have fueled record profits in Japan, even as trade tensions and North Korea’s nuclear program have clouded the outlook. While Abe’s Liberal Democratic Party is expected to win a parliamentary election set for Oct. 22, the margin will be important to his quest for constitutional revision. The longest economic expansion in a decade has raised sentiment, but many households are still waiting for companies to turn those profits into significant pay increases.

Economist Views

  • "Manufacturing was up this time, which I think is due to the strong export figures through the summer," said Masaki Kuwahara, senior economist at Nomura Securities Co. "But non-manufacturing is flat, and investment plans from large companies look down a bit. So while exports are strong, domestic demand is still subdued."
  • "Overall, it’s above consensus," said Atsushi Takeda, an economist at Itochu Corp. in Tokyo. "What’s improving is machinery, and areas related to capital expenditure."
  • "Improvement in small and medium-sized companies point to a broadening of better conditions," Takeda said.

Bloomberg Intelligence

A surprisingly sharp and broad-based improvement in business sentiment in the Bank of Japan’s 3Q Tankan suggests the economic expansion is gaining staying power, Bloomberg Intelligence economist Yuki Masujima wrote. Stronger domestic demand, supported by public investment, is lifting the mood among smaller companies, which employ most of Japan’s workforce, Masujima wrote. Some slack in capital expenditure plans is a concern but could indicate that companies are directing more resources toward higher pay to attract workers in a tighter job market, he said.

Other Details

  • Large manufacturers forecast the yen will trade at 109.29 per dollar for the fiscal year ending in March 2018.
  • Large companies across all industries say they plan to raise fixed investment by 7.7 percent in the year through March 2018 (forecast 8.3%).

— With assistance by Connor Cislo, and Yuko Takeo

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