Business sentiment among large Japanese manufacturers improved in December from three months earlier for the first rise in six quarters, the Bank of Japan said Wednesday, reflecting stronger exports amid a pickup in the global economy and a weakening yen.
The key index measuring confidence among companies such as carmakers and electronics firms rose to plus 10 in the latest quarterly Tankan survey from plus 6, slightly weaker than the average market forecast of plus 11 in a Kyodo News poll of economists.
The index for large nonmanufacturers, including services sectors such as retailing, was unchanged at plus 18, matching the average forecast.
The diffusion indexes represent the percentage of companies reporting favorable business conditions minus the percentage reporting unfavorable ones.
In assessing current business conditions, higher share prices and a recovery in crude oil prices lifted sentiment among manufacturers including companies dealing with materials.
But manufacturers were cautious over future conditions apparently due to uncertainties about the policies to be adopted by U.S. President-elect Donald Trump, with big manufacturers expecting the index to deteriorate 2 points three months ahead, the survey showed.
“The biggest factor for the improvement in recent confidence among manufacturers was the yen’s depreciation, bolstering sentiment of processing firms,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co.
The December Tankan shows companies expect the dollar to average 104.90 yen for the fiscal year through next March, compared with 107.92 yen in the previous survey.
But the yen is now much weaker than the projected level, as the Japanese currency has dropped since the U.S. presidential election in November amid expectations that aggressive stimulus under a Donald Trump presidency will help increase inflation and drive U.S. interest rates higher.
A pickup in the Chinese economy, which appears to be bottoming out, likely helped improve sentiment among “general-purpose machinery” companies, for which the index rose by 8 points to plus 14, Kodama said.
Though the companies adopted a cautious outlook in the survey, many are likely to become more optimistic, as they are currently focused on what they see as the positive aspects to Trump’s policies such as tax breaks rather than his protectionist policies, he said.
Among exporters, the index for electrical companies climbed 9 points to plus 4, while that of automakers rose 2 points to plus 10. Confidence in the petroleum and coal products sector improved 17 points to plus 22 amid recovering oil prices.
Meanwhile, Yasunari Ueno, chief market economist at Mizuho Securities Co., said the Tankan results are “provisional,” as it is too early for companies to make a judgment on what kind of impact Trump’s policies will have on their operations.
There are uncertainties “such as the details and timing of tax breaks and infrastructure building, but the biggest focus is on the prospect of protectionism,” Ueno said.
Reflecting sluggish consumer spending, confidence in the retail sector dropped 4 points to plus 3, while the index for firms related to accommodation, eating and drinking services fell 3 points to plus 9.
Sentiment in the construction industry improved 1 point to plus 40 amid expectations for increasing demand for public works.
Looking ahead, the index for nonmanufacturers is projected to decline 2 points to plus 16.
Big firms across all industries plan to expand capital spending by an average 5.5 percent in fiscal 2016 from the previous year.
The BOJ surveyed a total of 10,791 companies between Nov. 14 and Tuesday, of which 99.6 percent responded.