According to foreign media reports, a survey released by the Bank of Japan on April 1 showed that the confidence index of large manufacturing companies in Japan fell slightly for the first time in four quarters due to factors such as the shutdown of some automakers, but the confidence index of non-manufacturing companies, including the service industry, rose.

The results of the Bank of Japan’s corporate Short-term Economic Observation Survey (BOJ Tankan) released on April 1 showed that the sentiment index of large manufacturing companies fell to 11 in March from 13 in December last year. The large manufacturers, which include major companies in areas such as autos and electronics, saw the first decline in the confidence index in four quarters.

MCD5-0195B-T5-G2X-00-CV2 Some analysts believe that the deterioration of business sentiment among large manufacturers partly reflects the impact of the earthquake in Japan’s Noto peninsula in early January and the suspension of production at some of Toyota’s car plants due to the fraud scandal.

The survey showed that the confidence index of auto manufacturers fell sharply to 13 from 28 in December last year.

The number of foreign visitors increased significantly in February as the weak yen made spending in Japan relatively cheaper. The survey also showed that the confidence index of non-manufacturing companies, including the service sector, rose for eight consecutive months to 34 from 32 in December and reached its highest level since 1991, buoyed by an increase in inbound tourists and higher cost pass-through to consumers.

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Japan’s economy narrowly avoided a technical recession in the fourth quarter of last year, but economists expect it could still fall in the first quarter of this year.

MCD5-0195B-T5-G2X-00-CV2 Looking ahead to the next three months, the survey showed that both manufacturing and non-manufacturing companies were less optimistic, with the relevant confidence index at 10 and 27 respectively. Both manufacturing and non-manufacturing firms’ inflation expectations for the next few years were unchanged at more than 2 percent.

The BOJ Tankan survey is one of the most closely watched economic data compiled by the Bank of Japan and provides some guidance for BOJ policymakers in their decisions.

The Bank of Japan raised interest rates in March for the first time in 17 years. The move signals a normalisation of years of ultra-loose monetary policy. These ultra-loose monetary policies are designed to help end years of deflation and boost economic growth, and have led to a sustained depreciation of the yen.

MCD5-0195B-T5-G2X-00-CV2 The BOJ said it expected to achieve its 2 per cent inflation target in a stable and sustainable way, supported by strong wage growth, although the cost drivers of price rises were weakening. The Bank of Japan believes that a virtuous circle of rising prices and rising wages has emerged. There will be no rapid rate hikes ahead, and further rate hikes will depend on the state of the economy.

Saisuke Sakai, an analyst at Mizuho Research & Technology, said the impact on business and consumer activity would be limited for now. In the future, even if it raises rates further, the BOJ will be careful not to hurt economic growth.