A survey by Japan’s apex bank shows a positive outlook among the country’s large manufacturers owing to an agreement reached with the US in July on tariffs.
The quarterly survey by the Bank of Japan (BOJ), called the ‘tankan’, showed outlook among major manufacturers, the key so-called diffusion index, rose 1 point to plus 14 from the findings in June.
Indicating companies foreseeing good conditions minus those feeling pessimistic, investors said it makes a rate hike by the central bank more likely, although it’s unclear if it will do so at the next meeting later this month, or later.
In March, the tankan for large manufacturers marked the first drop in a year at plus 12. The sentiment among large non-manufacturers was unchanged at plus 34, according to the latest tankan.
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Japan signed a deal with the administration of US President Donald Trump that imposed a 15 per cent tariff on most goods exported to the US. Some goods face higher tariffs.
Initially, the US had imposed a 25 per cent tariff on auto imports, so the latest deal is an improvement for Japanese automakers. It also increases certainty over US policy, at least for now.
However the higher tariffs imposed on exports to the world's biggest market are still squeezing profits, wages, investment and spending for many industries.
Kei Fujimoto, senior economist at SuMi Trust, said that despite concerns about the tariffs’ impact on Japanese corporate earnings, the damage so far has been relatively limited.
Inbound tourism, too, is also helping, he said, which shows an upward trend.
The BOJ has kept rates near zero for years to help stimulate consumer spending and business investment and counter weak demand that led to deflation.
But prices have risen above the central bank’s target range of about 2 per cent. It raised its benchmark rate to 0.5 per cent from 0.1 per cent earlier this year.
The tankan shows the average inflation outlook for one year ahead was unchanged at 2.4 per cent.
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