Japan Business Survey: Slight Improvement in Outlook for Manufacturers

The latest business survey from Japan has shown a slight improvement in the outlook for manufacturers, signaling a potential uptick in economic activity. The survey, conducted by the Bank of Japan, revealed that the business survey index for large manufacturing firms jumped to 4.5% in the third quarter of 2024, defying market expectations for a deterioration to -2.5%. This positive reading marks the first time the index has turned positive in three quarters, even after the Bank of Japan raised interest rates in July and signaled plans to hike rates steadily.



The improvement in the business survey index can be attributed to several factors. The auto sector's recovery in production has significantly contributed to the positive sentiment, with much of the optimism coming from carmakers and related businesses. The auto industry's production recovery, following the recent certification scandal, has boosted confidence among manufacturers. Additionally, robust corporate capital investment in the production-machinery industry has further bolstered the overall business survey index.



Looking ahead, large Japanese manufacturing firms expect business conditions to improve further in the coming months, with an outlook of 8.9% in the fourth quarter. This positive outlook suggests that manufacturers are optimistic about the future, despite the Bank of Japan's plans to raise interest rates. The survey was also conducted as final data showed that Japan's economy grew an annualized 2.9% in the second quarter, lower than the advance figure of 3.1% and market forecasts of 3.2%.

In conclusion, the slight improvement in the business survey index for large manufacturing firms in Japan signals a potential uptick in economic activity. The recovery in the auto sector's production and robust corporate capital investment in the production-machinery industry have driven this positive sentiment. As manufacturers look ahead to the fourth quarter, they remain optimistic about the future, despite the Bank of Japan's plans to raise interest rates.