Japan’s major manufacturers show greater optimism in Q3

Confidence hit its highest in more than a year.

Business sentiment among big Japanese manufacturers improved further in the third quarter, signalling a stronger recovery than expected, results from the Bank of Japan’s quarterly  “tankan” survey showed.

The headline large manufacturing firm index rose to plus 9 last quarter from plus 5 in the second quarter, according to data released on 2 October. 

Last quarter’s result was the highest reading in over a year or since the first quarter of 2022 when the headline index hit plus 14. 

Segments that have shown the most optimism last quarter were producers of business-oriented machineries (+30), iron and steel (+18), ceramics (+16), automakers (+15).

Big manufacturers also managed to boost their profitability during the quarter to keep up with the rapid increase of input prices, Shotaro Kugo, senior economist at the Daiwa Institute of Research, said in a separate commentary.

“Signs have been detected suggesting that price pass-through in the manufacturing industry is heading for the completion of its cycle,” Kugo added.

Meanwhile, confidence among smaller players remained tepid in the third quarter with the manufacturing indices for small and medium-sized enterprises both unchanged at minus 5 and 0, respectively.

Capital expenditure among the large manufacturing firms is also projected to grow by 20% for the latest fiscal year, higher than the forecasted 13% capex hike across all industries. Outlook for the labour market, however remains gloomy despite a sustained improvement in business confidence.