Kihara Laika
TOKYO (Reuters) – Confidence among Japan’s largest manufacturers improved in the three months to June, reaching a level not seen in two years, a closely watched Bank of Japan survey showed, supporting the economy’s upward trajectory. view on a moderate recovery track.
But a Tankan survey on Monday showed sentiment among large service-sector companies worsened for the first time in four years, suggesting that rising living costs due to a weak yen are weighing on consumption.
The results were announced ahead of the Bank of Japan’s next policy meeting on July 30-31, complicating its decision to raise interest rates.
Monday’s survey showed that the overall confidence index among large manufacturers rose to +13 in June from +11 in March, slightly above market forecasts of +12.
The index measuring confidence among large non-manufacturers was +33, in line with market forecasts and down from +34 in the previous quarter.
Large companies plan to increase capital spending by 11.1% in the current fiscal year to March 2025, compared with 4.0% in the previous Tankan survey. This compares with consensus forecasts for median growth of 13.9%.
The Bank of Japan ended eight years of negative interest rates and other aggressive monetary stimulus measures in March as it judged sustained achievement of its 2% inflation target was within reach.
Many market participants expect the Bank of Japan to raise interest rates again this year from the current level of near zero, but disagreements remain over the timing of such increases.
Bank of Japan Governor Kazuo Ueda said the central bank would raise interest rates further if there is enough evidence that underlying inflation will sustainably reach its forecast 2% target.
Although inflation has been above the Bank of Japan’s target for two years, Japan’s fragile economic recovery has cast a shadow on its path to raising interest rates.
Japan’s economy shrank at an annual rate of 1.8% in the first quarter as businesses and households reduced spending. While analysts expect growth to rebound this quarter, a weak yen has weighed on household sentiment by pushing up the cost of imports of fuel and food.
