Large Japanese companies surprisingly optimistic as U.S. tariffs bite
According to the Bank of Japan's quarterly tankan survey, released Tuesday, the business sentiment index for large manufacturers improved to 13, up from 12 in the first quarter.
The latest figure exceeded the average forecast of 10 by 15 think tanks.
This was the first tankan survey conducted after U.S. President Donald Trump introduced 10% "reciprocal" tariffs and 25% tariffs on vehicles in April.
Confidence among large companies in the auto industry, which is the backbone of the Japanese economy, dropped to 8 from 13 in the previous survey.
"Although the tariff situation is still up in the air, the survey suggests there's a growing belief that if reciprocal tariffs stay at 10%, industries except for the auto sector wouldn't face major impacts," Koichi Fujishiro, an economist at the Dai-ichi Life Research Institute, wrote in a report on Tuesday.
The tankan survey asks companies whether business conditions are 'favorable,' 'not so favorable" or 'unfavorable." Positive readings mean those answering "favorable" have outnumbered companies answering "unfavorable."
As more than 99% of companies polled normally respond to the questionnaire, the data is considered to be of a very high quality and an accurate reflection of the situation on the ground. The latest survey polled nearly 9,000 companies between May 28 and June 30.
The tankan shows small and medium-size manufacturers were not as optimistic as larger companies.
The reading for medium-size manufacturers in the second quarter dropped to 10 from 11, while the figure for smaller companies declined to 1 from 2.
Trade Minister Yoji Muto said at a news conference on Tuesday that it is still hard to gauge the impact of the auto tariffs, but some feedback to consultation desks set up by the ministry suggests that the tariffs have already affected some auto-related companies.
Japan and the United States have made no significant progress in tariff negotiations despite months of dialogue. Japan is asking the U.S. to remove or lower the auto tariffs, but Trump appears to be unwilling to do so.
The tankan showed that sentiment among large nonmanufacturers met the average forecast of 34, down slightly from 35 in the first quarter. Still, the figure is the highest in more than three decades.
Strong confidence at nonmanufacturing companies is helped by booming inbound tourism, robust investment related to digital transformation, high construction demand and a recovery in consumption, Fujishiro pointed out.
The tankan also indicates that the labor shortages are still serious, so more companies will be under pressure to offer higher wages to attract employees, which could justify a rate increase by the BOJ, Fujishiro added, saying that the bank may raise rates this month.
The BOJ is scheduled to have a two-day policy meeting on July 30 and July 31.
A Bloomberg survey of 53 BOJ watchers last month showed that nearly half of those surveyed believed that the bank will not raise rates this year given that it will take time to gauge the impact of U.S. tariffs.
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