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Japan Business Confidence Q1 2018

Japan: Business confidence falls in Q1 for the first time in two years

According to the Bank of Japan’s quarterly Tankan business survey, sentiment among large manufacturers fell slightly in the first quarter of 2018, suggesting economic momentum has peaked. The index fell from a revised 26 in Q4 2017 (previously reported: 25), an 11-year high, to 24 in Q1, slightly under the market expectations of 25. The Tankan business survey is calculated by subtracting the number of respondents who say economic conditions are improving from those who say they are deteriorating. A positive reading means optimists outnumber pessimists.

Confidence in non-manufacturing industries fell from 25 points in Q4 to 23 in Q1, slightly under the expected reading of 24.

Manufacturers’ sentiment was moderated by rising raw material costs and higher wages, along with the recent appreciation of the yen. Meanwhile, escalating risks of trade protectionism, particularly from the United States, could dampen confidence in the months to come if tensions are not diffused. Nevertheless, the forward-looking indicator for the next three months rose 1 point to 20, the highest level since 2007.

Lastly, large manufacturers forecast that the Japanese yen will average 109.6 JPY per USD in the first half of the 2018 fiscal year (ending March 2019).

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