Japan’s Economy: Business sentiment has improved significantly with expectations for the economy recovering from a year-long recession.

 

The Bank of Japan’s “Tankan” quarterly survey suggests business sentiment has rebounded across the board

According to the Bank of Japan's latest “Tankan” quarterly survey released in December which shows a short-term economic outlook of enterprises in Japan, business sentiment has improved sharply with expectations that Japanese economy is recovering from a year-long recession. 

The Tankan reported rebounds in all categories, both manufacturing and nonmanufacturing companies, large and small. The index of business conditions among large manufacturers rose to minus 10 from minus 27, while business sentiment among large non-manufacturers such as service industries rose to minus 5 from minus 12. 

The index for large manufacturers has improved for the second consecutive term and the extent of improvement was the largest since the June 2002 survey. The recovery in exports and production such as automobiles drove the improvement in business sentiment amid resumption of economic activities in the world, which had been stagnant due to the spread of the new coronavirus infection.

Japan’s economy is on a recovering truck, electricity demand implies

Looking at the electricity demand that reflects economic trends, the consumption fell sharply from this spring to summer due to the economic stagnation caused by the spread of the new coronavirus infection, but the recent decline is limited within only a few percentage points compared to the previous year indicating the Japanese economy is on a recovery track.  

The chairman of the Federation of Electric Power Companies of Japan, which is made by major electric power companies, points out that electricity demand is bouncing from the bottom hit in May after the pandemic gave catastrophic damage to Japan’s economy. Several data also show that the economic activity in Japan as a whole has resumed with a tailwind from the government's economic stimulus measures. 

In April, when the state of emergency was announced, electricity demand decreased by about 4% from the same month of the previous year, and it decreased by about 9% in May expanding the rate of decline, but recently the rate of decrease in electricity demand has been reduced with the consumption was only 3% lower than the previous year in September and October. 

The tourism industry is recovering thanks to the government's economic stimulus measures such as "Go To Travel" and "Go To Eat". Factory utilization rates in the automobile industry and other industries also seem to be rising. Electricity demand also depends on weather conditions. Due to the record heat wave, it increased by 2% in August from the same month of the previous year. There is also an analysis that the spread of coronavirus infection will boost electricity demand in the medium to long term. Changing work style including working at home is prevailing to prevent infection and companies are being forced to use IT equipment more than ever. As data usage increases, investment in data centers that use a lot of electricity is expected to increase.

Japanese government suspends its support measure, "Go To Travel" campaign

However, the number of people infected with the new coronavirus in Japan started to increase again with no prospect of decrement in the cases seen for the time being. Now the Japanese government was forced to review policies such as "Go To Travel". If a state of emergency is declared again in Japan, it is concerned that demand will drop to the same level as in April and May of this year. 

As for future outlook, improvement is expected to continue for large companies in manufacturing industries with the index at minus 8, while large companies in non-manufacturing industries are expected to deteriorate slightly to minus 6. In particular, business sentiment of small and medium companies in non-manufacturing industries is expected to deteriorate by 8 points to -20 causing concerns about the impact of re-spreading infection on those companies. 

Although recent surveys and data show that demand is recovering in a wide range of industries, concerns for future outlook remain as the new coronavirus infection spreads again. Continuing recovery of Japan’s economy will hinge on how Japan contains the pandemic without harming business and consumer sentiment in coming weeks.