The Bank of Japan’s quarterly “tankan” survey startled most market analysts June 25 by reflecting unexpectedly strong business sentiment among the nation’s principal manufacturing firms.

But in contrast, the 2 percentage point hike in the consumption tax on April 1 and a continuing decrease in public works spending took their toll on both major and smaller nonmanufacturers, whose business confidence worsened over the past three months. Although the results of the survey basically indicate that the economy is firming up, they also show that the recovery is only barely trickling down to smaller firms.

The BOJ is expected to wait for more economic indexes to be announced before making a decision on a possible increase of its official discount rate. The survey for June showed a 5-point improvement in the diffusion index — calculated by subtracting the percentage of companies that believe present business conditions are unfavorable from that of firms with a positive outlook — for large manufacturers from the March survey figure of positive 2.

The June figure of positive 7 was the largest since a positive 13 was recorded in November 1991, according to BOJ officials. The survey covered 9,469 firms.

Coronavirus banner