Tetsushi Kajimoto
TOKYO (Reuters) – Japan’s manufacturers became more confident about their business climate in July but service sector sentiment weakened, Reuters’ monthly Tankan survey released on Thursday, reflecting an uncertain economic outlook.
The survey of 506 large non-financial companies was conducted two weeks before the Bank of Japan holds a policy review on July 30-31. Investors are looking for clues as to when the central bank might raise interest rates after it raised them for the first time since 2007 in March and decided last month to reduce its bond purchases.
The central bank will likely scrutinize the Tankan survey and other data on the short-term outlook for signs of sustained inflation and robust household spending supported by wage growth, which could strengthen the case for further rate hikes.
The Reuters Tankan survey, which closely tracks the Bank of Japan’s Tankan, showed that the manufacturing business confidence index rose to plus 11, up five points from June and the first increase in four months.
However, manufacturers expect the index to bounce back to plus nine over the next three months.
“High domestic prices are weakening consumption and the slowdown in the Chinese economy is allowing raw materials from the Middle East bound for China to enter the Japanese market at low prices,” a manager at a chemical manufacturer said in a Reuters survey conducted July 2-12, on condition of anonymity.
“Sales volumes are being held down by the dual blow of sluggish domestic demand and cheap imported raw materials from overseas.”
“The weak yen has caused raw material prices to rise and remain high, and we are struggling to pass on the costs to our customers,” wrote the owner of a food processing company.
The Reuters Tankan service sector business conditions index fell for the first time in three months to plus 27 from plus 31 in the previous month. The non-manufacturing sector is expected to post an index of plus 28 in October.
The Reuters Tankan index is calculated by subtracting the percentage of pessimistic responses from the percentage of optimistic responses. A positive number indicates that optimistic respondents outnumber pessimistic respondents.
(Editing by Tetsushi Kajimoto and Christopher Cushing)
