Business is booming.

Japanese business retains confidence ahead of Omicron’s arrival

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Japanese companies have confidence in the country’s economy, according to the latest quarterly survey by the Bank of Japan, which analysts warned was conducted before most business leaders had factored in the new Omicron coronavirus variant.

The BoJ’s quarterly Tankan survey showed sentiment among big Japanese manufacturers was unchanged from the previous report, as supply chain disruptions began to ease and companies felt capable of dealing with higher oil and other commodity prices.

The Tankan index of sentiment among large manufacturers remained at plus 18 in December, the same level as September.

Shortages of semiconductors for products ranging from cars to consumer electronics have eased following the gradual lifting of lockdowns in south-east Asia, where Japanese companies have built complex supply chains.

The Tankan survey is one of the most comprehensive economic indicators in Japan and is closely monitored by economists across the world. It polls companies about whether business conditions are “favourable” or “unfavourable”, and subtracts the latter from the former to yield a reading between minus 100 and plus 100, with figures above zero indicating positive business sentiment.

While sentiment has remained in positive territory for a sustained period, analysts pointed out that the report represented the mood before the effects of Omicron emerged.

At the end of November, the Japanese government tightened restrictions on foreign arrivals and overseas business travel by its own citizens — a source of frustration for many companies — to help contain the spread of the virus. The BoJ said that almost 80 per cent of respondents to the Tankan survey had submitted their replies by November 29.

Sentiment in the services sector jumped, with the index rising from plus two to plus nine following the lifting of the Covid-19 state of emergency at the end of September. Retail improved from minus four to plus three.

Although restaurants were allowed to sell alcohol and stay open later, analysts said people were still uneasy about dining out. Sentiment in the accommodation, eating and drinking sector rose 24 points but still languished at minus 50.

The latest Tankan survey “showed that the services sector has started to narrow the gap relative to manufacturing and we think that process has further to run,” said Marcel Thieliant, senior Japan economist of Capital Economics in a note.

With almost 80 per cent of the population vaccinated and infections relatively low, “the services sector should continue to recover”, Thieliant added.

Carmakers such as Toyota Motor are increasing production to make up for lost output this year. The sentiment for automobiles fell slightly from minus seven to minus eight. “The decline has come to a near halt for the industry,” said Takuji Aida, chief economist at Okasan Securities.

While noting robust earnings in both manufacturing and non-manufacturing industries, Aida warned that potential labour shortages risked slowing down the recovery of the service sector.

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