Bank of Japan ‘tankan’ survey upbeat over economic recovery

A closely watched economic survey by the Bank of Japan shows growing optimism as the world’s third-largest economy grapples with the damage from the coronavirus pandemic.

The quarterly 'tankan' survey’s headline index for big manufacturers’ sentiment stood at plus 5 in March, a considerable improvement over the minus 10 marked in December, and more positive than the forecast at plus 4.

The survey reported Thursday highlights a steady recovery in sentiment over the last three quarters, to levels before COVID-19 began in late 2019.

The tankan measures corporate sentiment by subtracting the number of companies saying business conditions are negative from those responding they are positive.

Sentiment among large nonmanufacturers improved by four points to minus 1, underlying how that sector is bouncing back far more slowly than big manufacturers.

Naoya Oshikubo, senior economist at SuMi TRUST, or Sumitomo Mitsui Trust Asset Management, said he believes the recovery is slower in the service sector because of government-backed 'states of emergency' issued periodically, with the latest ending in March.

Exports have led the recovery, while the food, travel and accommodation sectors have stalled. But the overall impact will be gentler than last years’ because the latest emergency only applied to some parts of Japan, Oshikubo said in a report this week.

“And, in general, people have become accustomed to COVID-19 measures,” he said.

The coronavirus sent sentiment in Japan Inc plunging last year to levels last seen when the economy was battered by the financial crisis more than a decade ago.

Although trade and some economic activity have been recovering, income from tourism, a major driver for growth in recent years, is still squelched because of pandemic-related restrictions.

Some 9,100 people have died from COVID-19 in Japan. The vaccine rollout has barely begun, with less than 1% of the population inoculated.

Junichi Makino, chief economist at SMBC Nikko Securities, noted the vaccine is key to ensuring a recovery in the nonmanufacturing sector, while profitability at major companies was likely to keep improving.

“Consumer spending is critical for boosting domestic demand, and that’s closely related to containing the coronavirus and progress of the vaccine rollout,” he said in comments on the tankan.

With cases rising recently in a 'fourth wave', worries are growing about the Tokyo Olympics, set to open in July, with tens of thousands of people, including athletes, business and government officials and media, entering the country from abroad.