Japan: Business sentiment deteriorates in Q2; prospects improve markedly
July 1, 2014
According to the Bank of Japan’s quarterly TANKAN business survey, sentiment among large manufacturers deteriorated in Q2 following the index hitting the highest level since Q4 2007 in the previous quarter. The index declined from 17 in Q1 to 12 in Q2. The print came in below the reading of 16 that markets had expected and represented the lowest level in three quarters. That said, the index is firmly entrenched above the 0-threshold, which means that optimists outnumber pessimists.
Confidence in non-manufacturing industries also deteriorated in Q2, decreasing from 24 in Q1 to 19. Q1’s reading had represented the highest level since 1991. Businesses’ worsening mood mostly reflected the impact of the sales tax hike that was introduced in April, which dampened household purchases, particularly of big ticket items.
Despite the deteriorations, large enterprises in the manufacturing sector expect that conditions will improve in the next three months. The forward-looking forecast index rose to 15 in Q2 (Q1: +8), which represents the highest level since Q4 2007. Meanwhile, large manufacturers forecast that the Japanese yen will trade at 100.2 JPY per USD by the end of the fiscal year 2014 (ending March 2015).