Japan: Business sentiment unchanged for second consecutive month in Q3

According to the Bank of Japan’s quarterly TANKAN business survey, sentiment among large manufacturers was stable at 6 in Q3. The print matched the result observed in the previous two quarters but was below the reading of 7 that market analysts had expected. Manufacturers’ sentiment remains above the 0-threshold, which means that optimists outnumber pessimists. Rising doubts about Prime Minister Shinzo Abe’s ability to jumpstart the economy and a strong yen are limiting any upswing in economic confidence among manufacturers.

Confidence in non-manufacturing industries declined in Q3, falling from 19 in Q2 to 18 and marked the lowest reading since Q4 2014.

The Bank of Japan’s commitment to avoid deflation and maintain borrowing costs at low levels is cushioning negative spillovers from weak global demand, a strengthening currency and rising domestic uncertainties. Therefore, confidence among large enterprises in the manufacturing sector about the country’s economic outlook in the next three months was unchanged at the previous quarter’s 6. Meanwhile, large manufacturers forecast that the Japanese yen will average 107.4 JPY per USD in the second half of the fiscal year 2016 (ending March 2017), which is below the 111.4 JPY per USD forecast in the previous quarter.