Japanese companies retain confidence ahead of Omicron’s arrival

Japanese companies have confidence in the country’s economy, according to the Bank of Japan’s latest quarterly survey, which analysts warned was conducted before most business leaders took into account the new variant of the Omicron coronavirus.

The BoJ’s quarterly Tankan survey showed sentiment among major Japanese manufacturers was unchanged from the previous report, as supply chain disruptions began to ease and companies felt able to cope. rising prices for oil and other commodities.

The Tankan sentiment index among major manufacturers remained at plus 18 in December, the same level as in September.

Semiconductor shortages for products ranging from cars to consumer electronics have eased following the gradual lifting of lockdowns in Southeast Asia, where Japanese companies have built complex supply chains.

The Tankan survey is one of the most comprehensive economic indicators in Japan and is closely watched by economists around the world. It asks companies whether trading conditions are “good” or “bad,” and subtracts the latter from the former to give a reading between minus 100 and plus 100, with numbers greater than zero indicating positive business sentiment.

While sentiment has remained in positive territory for an extended period, analysts said the report represented the state of mind before Omicron’s effects appeared.

In late November, the Japanese government tightened restrictions on foreign arrivals and overseas business travel by its own citizens – a source of frustration for many businesses – to help contain the spread of the virus. The BoJ said nearly 80% of respondents to the Tankan survey had submitted their responses by November 29.

Sentiment in the service sector jumped, with the index dropping from plus two to plus nine following the lifting of the Covid-19 state of emergency at the end of September. Retail trade has gone from minus four to plus three.

Although restaurants were allowed to sell alcohol and stay open later, analysts said people were still uncomfortable dining at the restaurant. Sentiment in the accommodation, food and beverage sector rose 24 points but still languished to minus 50.

The latest Tankan survey “showed that the service sector has started to close the gap to manufacturing and we believe this process must continue,” Marcel Thieliant, senior Japanese economist at Capital Economics said in a note.

With nearly 80% of the population vaccinated and relatively low infections, “the service sector is expected to continue to recover,” Thieliant added.

Automakers such as Toyota Motor are ramping up production to make up for lost production this year. Sentiment for automobiles edged down from minus seven to minus eight. “The decline has almost stopped for the industry,” said Takuji Aida, chief economist at Okasan Securities.

While noting strong profits in manufacturing and non-manufacturing industries, Aida warned that potential labor shortages risked slowing the recovery of the services sector.

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Natalee Broderick

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