This photo shows the Bank of Japan headquarters building in Tokyo's Chuo Ward. (Mainichi)
TOKYO (Kyodo) -- Sentiment among major Japanese manufacturers in June improved to its highest level since December 2018, lifted by a recovery in demand in the U.S. and other overseas economies despite a blow from a global chip crunch, the Bank of Japan said Thursday.
The key index measuring confidence among companies such as automobile and electronics makers rose to 14 from 5 in March, marking the fourth straight quarter of improvement, according to the central bank's quarterly Tankan survey.
Confidence was at its highest since it stood at 19 in the December 2018 survey. Still, it undershot the average market forecast of 17 in a Kyodo News survey.
The index for large nonmanufacturers, including the coronavirus pandemic-battered service sector, rose to 1 from minus 1 in the March survey, turning positive for the first time in five quarters.
The Tankan index represents the percentage of companies reporting favorable conditions minus the percentage reporting unfavorable ones.
The survey reinforced the view that while a recovery from the coronavirus pandemic fallout is being observed, it is still uneven, with nonmanufacturers lagging behind manufacturers.
"The chip shortage hurt confidence among automakers but it is expected to improve going forward, so the recovery trend in the manufacturing sector remains unchanged," said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc.
Automakers, the backbone of Japan's export-driven economy, have benefited from a pickup in demand in key U.S. and Chinese markets, helping boost confidence in the overall manufacturing sector.
Automakers' sentiment was positive at 3, though down 7 points from the previous survey, weighed on by a global shortage of semiconductors that has forced some automakers to curb production.
Such tight chip supply conditions have instead raised demand for equipment to make semiconductors, improving sentiment among production machinery makers, the BOJ data showed.
In the United States and some European countries where economic activity has been gaining momentum with the rollout of vaccines, inflation worries have grown.
Economists say such concerns have not materialized in Japan as inflation remains stubbornly low. But some in sectors such as food and beverage as well as metals voiced concern that rising materials costs would hurt profitability, a BOJ official said.
With the impact of the COVID-19 crisis persisting, the speed at which people in Japan get vaccinated is expected to determine the pace of a recovery in the services sector.
Japan is accelerating its vaccination drive, providing shots in workplaces and universities in addition to local municipalities with about three weeks to go until the Tokyo Olympics starting on July 23.
Confidence among operators of hotels and restaurants remained deep in the negative, at minus 74, though it is expected to improve to minus 47 in the coming months.
"The gap between manufacturers and nonmanufacturers (in recovery) will become narrower as vaccinations progress," Maruyama said.
Major cities such as Tokyo and Osaka emerged from the country's third state of emergency in late June, shifting to less severe anti-virus measures. But a recent rebound in coronavirus cases casts a pall over the outlook.
Large companies, defined as those with 1 billion yen ($9 million) or more in capital, expect a 9.6 percent increase in capital spending for fiscal 2021 from April.
Looking ahead, the index for manufacturers is projected to worsen slightly from 14 in the latest survey to 13 and that for nonmanufacturers to rise from 1 to 3.
Companies expect the U.S. dollar to trade at 106.71 yen in fiscal 2021, up from 106.07 yen in the March survey.
The BOJ surveyed 9,407 companies between May 27 and Wednesday, of which 99.2 percent responded.
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