In the second quarter, the BOJ Tankan quarterly survey indicated an improvement in business sentiment of the large manufacturers in Japan. The closely monitored index of diffusion increased to 14 against 13 in the latter quarter, in line with market expectations and the scaling back of the uncertainty surrounding the US tariff policy. Such an upward trend reinforces the anticipation of a future rise in interest rates by the central bank as the economic indicators keep stabilizing in the manufacturing sector of Japan.
Tariff uncertainty is lowered, and manufacturing confounds are recovered
A closely monitored survey at the Bank of Japan also revealed a second consecutive quarter-to-quarter improvement of sentiment among larger manufacturers in Japan, and this increase made an increase in its central bank rates more likely, as per the New Haven Register. The quarterly survey, referred to as the tankan, represented the prospects of key manufacturers. A primary index named diffusion increased 1 point to a value of plus 14 compared to the June results.
The sentiment of the business of the larger Japanese manufacturers also improved in the second consecutive quarter because worries over U.S. tariff policy have somewhat reduced, according to the quarterly survey on tankan by the Bank of Japan published on Wednesday, according to the Japan Times. The reading of mid-sized manufacturing companies went up to 12 compared to 10, whereas the same was maintained by the smaller companies at 1.
Japanese exporters are enjoying stability brought about by the tariff agreement
It was the first tankan survey since Japan and the United States had struck an agreement in July to equalise the tariff rate reciprocity at 15 percent, and lower the price on passenger cars to 15 percent by cutting its previous tariff rate of 27.5 percent. The relative optimism in the latest tankan is a manifestation of a certain relief regarding an agreement on tariffs with the U.S., which was achieved in July. This agreement with the administration of President Donald Trump sets a 15 percent tariff on most goods that are exported to the U.S.ย
The non-manufacturing industries are also performing well
The tankan also revealed that the sentiment among large non-manufacturers was held at 34 and remained the same as in the last quarter, to be the highest sentiment since the late 1970s. The sentiment in construction had been boosted by 5 points to 49 as prices had risen, and the electric and gas utilities were boosted by 4 points to 16, with demand exploding as a result of summer heat.
Large shipbuilding and heavy machinery companies gave confidence of 36 as compared to 27 in the last survey. Analysts cite the possible reason for this to have been due to the augmentations in government spending in defense aspects. Representatives of midsized non-manufacturing companies decreased 1 point to 24, and representatives of smaller non-manufacturing companies decreased 1 point to 14.
High-quality economic data is provided by survey methodology
The tankan survey inquires companies whether business conditions are either favorable, not so favorable, or unfavorable. Positive readings are an equal amount that answered favorably, and are higher than those that answered unfavorably. The fact that over 99 percent of the companies surveyed are in the general habit of responding to the questionnaire is an indication that the information is of very high quality and a true representation of the situation on the ground. In the most recent tankan, 8,900 companies were surveyed Aug. 27 and Sept. 30.
The BOJ Tankan survey indicates the resilience of the manufacturing sector in Japan in the face of economic uncertainties in the world economy. Better performance among the big manufacturers, along with steady non-manufacturing, is a good environment to encourage possible changes to the monetary policy. Lower tariff uncertainty in the post-US-Japan deal is an added boost of confidence for businesses that intend to invest in and carry out business.