Japan's Large Manufacturers Maintain Steady Sentiment in Q3, BOJ Tankan Shows

The Bank of Japan's (BOJ) quarterly Tankan survey, released on October 1, 2024, revealed that business confidence among large manufacturers in Japan remained unchanged at 13.0 in the third quarter (Q3) of 2024. This result aligns with market expectations and indicates a stable outlook for the Japanese manufacturing sector.

The headline large Manufacturers' Sentiment Index, which measures the difference between positive and negative responses, held steady at 13.0. This index has remained relatively stable over the past year, reflecting the resilience of the Japanese manufacturing sector despite global economic uncertainties.

The BOJ's monetary policy adjustments have played a crucial role in shaping large manufacturers' sentiment. The BOJ's ultra-loose monetary policy, implemented between 2013 and 2024, aimed to stimulate economic growth and combat deflation. This policy, along with the BOJ's recent unwinding of quantitative easing, has provided support to the Japanese Yen, which in turn has boosted business confidence.

The differential between Japanese and US bond yields has also influenced manufacturers' confidence. Over the last decade, the BOJ's ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly the US Federal Reserve. This divergence has supported a widening of the differential between the 10-year US and Japanese bonds, which has favored the US Dollar against the Japanese Yen. However, the BOJ's decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential. This narrowing has contributed to the stability of the Japanese Yen and, consequently, the confidence of large manufacturers.

Risk sentiment and geopolitical factors have also impacted the stability of large manufacturers' sentiment in Japan. The Japanese Yen is often seen as a safe-haven investment, meaning that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen's value against other currencies seen as more risky to invest in. This stability in the Japanese Yen has contributed to the steady sentiment among large manufacturers.

In conclusion, the BOJ's monetary policy adjustments, the differential between Japanese and US bond yields, and risk sentiment have all played a role in shaping large manufacturers' sentiment in Japan. The steady sentiment among large manufacturers in Q3 of 2024, as indicated by the BOJ's Tankan survey, reflects the resilience of the Japanese manufacturing sector and the positive impact of the BOJ's policy decisions on business confidence.