Japanese manufacturer morale in August hits 7-month high

Although commodity inflation continues to squeeze profits, demand is returning, according to companies surveyed in the world’s third-largest economy, which on Monday posted a rebound in gross domestic product from April to June.

However, the outlook for further recovery is subdued due to inflationary pressures, a relapse of domestic COVID-19 and a gloomy supply outlook for key components like semiconductors.

Manufacturers expect a slight improvement over the next three months, and the services company outlook index was unchanged in the August 2-12 survey, which closely follows the quarterly “tankan” survey of the Bank of Japan (BOJ).

“Economic reopening is underway and consumption seems to be picking up, although we are not immune to the risk of seeing more and more price hikes chilling consumers,” said the director of a company of food manufacturing in the survey of 495 large and medium enterprises, of which 256 responded.

The Reuters Tankan index of manufacturing sentiment rose to 13 in August from 9 the previous month, marking a seven-month high. The services sector index rose to 19 from 14 the previous month and hit its highest point since October 2019.

(For a detailed table of results, click).

Sub-indices of manufacturers dealing with raw materials such as chemicals and oil refineries/ceramics saw double-digit increases, thanks to robust demand for semiconductor-related goods. That of the textile/paper industries fell by 20 points due to the prolonged rise in costs.

The sub-index for transportation equipment makers was flat at minus 38, with some citing automaker production cuts and chip shortages as reasons for stalling the recovery.

Among service-sector companies, transportation/utility companies and wholesalers drove the improvement, in which many respondents said the weaker yen is boosting overseas earnings.

The reading for “other services”, a category that includes restaurants and hotels, fell 10 points as face-to-face services were hit by the rapid resurgence of COVID-19 in Japan at the end of the month. last, although the government did not reinstate restrictions.

Looking ahead to the three-month outlook, manufacturers expect their mood to rise 2 points to 15 in November, while service companies expect the mood to remain flat at 19, according to the survey.

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