Japan: Business confidence weakens in Q2
July 2, 2018
According to the Bank of Japan’s quarterly Tankan business survey, sentiment among large manufacturers fell in the second quarter of 2018, suggesting economic momentum has yet to gain traction following a weak first quarter. The index dropped from 24 in Q1 to a one-year low of 21 in Q2, posting back-to-back declines and coming in below market expectations of 22. 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 inched up to 24 in Q2 from 23 in Q1, above the expected reading of 21.
Manufacturers’ sentiment deteriorated against a backdrop of escalating global trade skirmishes; rising global commodity prices, which are exacerbating raw material price pressures; and a strong yen. The forward-looking indicator for the next three months was unchanged at 21, indicating firms expect business conditions to be stable.
Lastly, large manufacturers forecast that the Japanese yen will average 107.3 JPY per USD in the second half of the 2018 fiscal year, which ends in March 2019 (Q1 forecast: 109.7 JPY per USD).
Author: Lindsey Ice, Economist