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Optimism returns as Japan fights back from Covid-hit 2020

(ATF) Optimism has returned for some of Japan’s manufacturers and service-sector firms as the world’s third largest economy battles to shake off the effects of the global pandemic. 

New data has revealed increasing numbers of the country’s businesses are now hopeful that they can recover from the Covid-19 disruptions of 2020, according to the monthly Reuters Tankan, which tracks the Bank of Japan’s (BOJ) closely watched Tankan quarterly survey.

Manufacturers highlighted worsening conditions in capital spending because of the hit from the coronavirus in the poll of 485 large and mid-sized companies. 

But while firms at home remained wary about new investments, inquiries from China were rising, according to one machinery maker.

This comes as Japan announced a fresh $708 billion economic stimulus package on Tuesday to speed up its recovery from the country’s deep coronavirus-driven slump, while targeting investment in new growth areas such as green and digital innovation.

The new package will include about 40 trillion yen ($384.54 billion) in direct fiscal spending and initiatives targeted at reducing carbon emissions and boosting adoption of digital technology.

Japan’s economy grew an annualised 22.9% in July-September, better than the initial estimate of a 21.4% expansion, revised data from the Cabinet Office also showed on Tuesday.

Exports rebound

The revised figure for gross domestic product (GDP) compared with economists’ median forecast for 21.5% growth in a Reuters poll.

The Tankan result underlines the challenge Prime Minister Yoshihide Suga faces in encouraging a more robust recovery of the economy even after a sharp bounce in the third quarter due to rebounds in exports and consumption.

And while data also revealed this week that Japan’s household spending rose in October for the first time in over a year, a recent resurgence of infections is clouding the outlook, keeping policy-makers under pressure to support a fragile recovery with massive monetary and fiscal stimulus measures.

The Reuters Tankan sentiment index for manufacturers improved to its highest since February in December, rising to minus 9 from minus 13 in the previous month. But the index still stayed in negative territory for a 17th straight month.

The service-sector index showed a more significant improvement, rising to minus 4 from 13 in November, also its highest since February, with sentiment among all sub-sectors coming in better than in the previous month.

Economic growth

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

The BOJ, which lowered its economic growth and inflation forecasts for the current fiscal year at its last policy meeting, is due to release its own fourth-quarter “tankan” survey results on December 14.

The central bank’s third-quarter survey showed corporate capital expenditure plans by companies of all sizes and industry for the current fiscal year were at their weakest since the 2009 global financial crisis.

“Demand at home and in Europe is stagnating due to a resurgence of coronavirus infections,” a manager at a paper and pulp maker wrote in the Reuters Tankan survey. “Only China is going well.”

Manufacturers’ business confidence was seen recovering further to minus 5 in March, while that of service-sector firms was forecast to remain unchanged at minus 4.

  • Additional reporting by Reuters

Sean OMeara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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