Japan: International headwinds contrast domestic resilience

On July 1, the BoJ has published its Tankan report (details on July 2),
which covers business confidence and investment tendencies on the
basis of a large sample of 9970 manufacturing and non-
manufacturing enterprises. The main upshot is that Japanese firms
have increasingly come under pressure from international
headwinds.

Highlights:

  • Over the last days, two different business confidence surveys highlighted the rising dichotomy of foreign and domestic demand in the Japanese economy.
  • The BoJ’s Tankan report showed another drop of business confidence within the largely export oriented manufacturing sector while the mood among large domestic non-manufacturers even slightly increased.
  • Japan’s manufacturing PMI fell back again mainly driven by the export orders component. By contrast, the service PMI (released today) even edged up.
  • The reports highlight our call that any key rate cut by the Bank of Japan (BoJ) will be dominated by international developments rather than domestic forces.
  • Recently, some members of the policy board voiced their concerns about the international environment, hinting at a lengthening of the BoJ’s forward guidance beyond spring 2020. However, regarding more substantial measures, the BoJ may want to await more information of the H2 2019 development. This argues for more BoJ action towards the end of the year.

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JAPAN: INTERNATIONAL HEADWINDS CONTRAST DOMESTIC RESILIENCE

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