Asia Economy

Japan business sentiment improves to pre-pandemic levels on global recovery hopes

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Key Points
  • Japanese big manufacturers' sentiment improved to pre-pandemic levels in the first quarter and companies stepped up capital spending plans, suggesting the export-reliant economy was benefiting from a solid recovery in global demand.
  • Confidence among big non-manufacturers also recovered from three months ago, underscoring the fading strains from the coronavirus pandemic, a central bank survey showed on Thursday.
  • The data offers some relief for policymakers striving to revitalize the pandemic-hit economy as a fourth wave of infections raises uncertainty about the outlook.
Workers make a casting mold from sand at the Tajima Light Metal Co. foundry in Hanyu, Saitama Prefecture, Japan on Monday, March 29, 2021.
Toru Hanai | Bloomberg | Getty Images

Japanese big manufacturers' sentiment improved to pre-pandemic levels in the first quarter and companies stepped up capital spending plans, suggesting the export-reliant economy was benefiting from a solid recovery in global demand.

Confidence among big non-manufacturers also recovered from three months ago, underscoring the fading strains from the coronavirus pandemic, a central bank survey showed on Thursday.

The headline index for big manufacturers' sentiment rose to plus 5 in March from minus 10 in December, the Bank of Japan's closely-watched "tankan" survey showed, marking the third straight quarter of improvement and hitting the highest level since September 2019.

It compared with market forecasts of a flat reading.

"The further strong rebound in the Q1 Tankan supports our view that the economy's recovery from the pandemic will gather pace again soon," said Tom Learmouth, Japan economist at Capital Economics.

The data offers some relief for policymakers striving to revitalize the pandemic-hit economy as a fourth wave of infections raises uncertainty about the outlook.

Big non-manufacturers' sentiment improved to minus 1 in the March survey from minus 5 in December, the survey showed.

While hotels and restaurants continued to suffer from the pandemic's blow, other service-sector firms saw business conditions improve thanks to a rebound in manufacturing activity, a BOJ official told a briefing.

Big firms expect to increase capital expenditure by 3.0% in the year that began in April, compared with a median forecast for a 1.4% increase, the survey showed.

Like many countries, Japan deployed massive monetary and fiscal stimulus over the past year to lift the economy back from a record postwar slump.

Many analysts expect the economy to have contracted in the first quarter but see it gradually emerging from the doldrums as solid exports offset some of the weakness in consumption.

The BOJ tankan indexes are derived by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.