In a notable shift, business confidence among large manufacturers in Japan has declined to its lowest level in seven months, largely attributed to waning demand from China, according to the most recent Reuters Tankan survey published on Thursday. This downturn sees the sentiment index for manufacturers fall to +4 for September from +10 observed in August, marking a significant drop and the lowest figure since hitting -1 in February of this year. The Reuters Tankan index employs a straightforward methodology: it is derived by calculating the difference between the percentage of optimistic and pessimistic responses from surveyed business managers.
A positive index value indicates that optimism is prevailing over pessimism in the sector. Factory managers spanning various industries have pointed to sluggish demand from China as a critical concern impacting their forecasts and strategies. This concern has led to expectations of further drops in business confidence, with projections indicating a potential decrease to plus 3 within the next three months, a significant decline from the current levels. On the services front, the situation seems a tad more positive; the Reuters Tankan service-sector index has also dipped, registering a score of plus 23 in September compared to plus 24 in August.
Notably, this marks the lowest level for the service sector index since September of the previous year. However, despite this decrease, service-sector businesses remain optimistic about the future, with expectations of a rebound to plus 27 in December. This anticipated recovery is reportedly bolstered by an expected increase in international tourist spending, which could inject much-needed vitality into the sector. For this comprehensive Reuters poll, a total of 506 major non-financial companies were surveyed, out of which 245 firms participated, responding on an anonymous basis between August 28 and September 6.
As we look forward to the upcoming Bank of Japan Tankan quarterly survey, set to be partially unveiled on October 1, these insights provide a crucial snapshot of the current state of the economy and the challenges facing Japanese businesses today. The intricate dynamics between local markets and international demands are proving to be pivotal in shaping futures across sectors in Japan..