via communication desk
TOKYO (Reuters) - Confidence among Japanese manufacturers recovered in January after falling last month as conditions in the materials industry improved, but amid uncertainty over Trump's policy proposals, a Reuters Tankan poll found Their prospects remain lackluster.
The improvement in business confidence is positive for the Bank of Japan's (BOJ) view that wage-driven economic growth will lead to inflation stabilizing around the 2% target, and is evidence of this as early as the next policy meeting on January 23-24 Further interest rate hikes are justified.
The survey of 505 major non-financial companies in Japan found that sentiment among manufacturers rose to plus 2 in January from minus 1 the previous month, the first negative reading in 10 months.
The Reuters Tankan Index is calculated by subtracting the percentage of pessimistic respondents from optimistic respondents. For the latest survey, 235 companies responded anonymously between December 24 and January 10.
Due to the rebound in global demand, upstream industries such as steel, oil refining, and chemicals have seen the most obvious recovery, while the automobile, electronics and other machinery industries have experienced a deterioration in January.
Looking ahead to the next three months, manufacturers' confidence levels are expected to remain unchanged at +2 in April.
Even among industries that are becoming more optimistic, respondents cited a number of worrying factors that keep their outlook neutral.
"While factory-related business remains strong, there are concerns that the auto parts business will be affected by the difficulties of Japanese automakers in China and Southeast Asia. Semiconductor-related businesses also face problems with market conditions delaying recovery." Ceramics companies in the survey reads.
Many chemical company managers said domestic demand in Japan remains weak.
This conflicting view echoes the results of the Bank of Japan's December Tankan poll, which showed a slight improvement in current conditions but a deterioration in the outlook.
With President-elect Donald Trump taking office on January 20, managers remain uncertain about the future of U.S. government policy, especially international trade policy.
"Given the uncertainty about what policies will be implemented and whether tariffs will actually increase, it is difficult to take any action now," a manager at a machinery manufacturer wrote.
Meanwhile, the services index edged up to 31 in January from 30 last month. The index is expected to be unchanged at 31 in April.
"Customer visits, including inbound tourists, are growing steadily as domestic consumer confidence increases," a retail company manager wrote.
A manager at a construction company said some progress had been made in passing costs onto service prices to ensure profits despite a labor shortage.
Recent data showed that Japan's wage rise has widened and inflation remains above the Bank of Japan's 2% target, reinforcing market expectations that interest rates may rise in the short term, although consumer spending and factory output remain weak.
(Reporting by Kantaro Komiya; Editing by Sonali Paul)