TOKYO- Japan’s service-sector mood improved to a two-year high but the recovery among manufacturers stalled, a closely watched central bank survey showed, a sign rising raw material costs was weighing on the economy’s recovery from the pandemic.
Big firms expect conditions to worsen ahead as high fuel prices and a weak yen push up import costs, reinforcing expectations Japan will maintain massive fiscal and monetary support to underpin a fragile economy.
“Non-manufacturers’ sentiment got a boost from the end to pandemic curbs, while supply constraints hit manufacturers,” said Toru Suehiro, an analyst at Daiwa Securities.
“Overall, business confidence lacks strength with both manufacturers and non-manufacturers expecting conditions to worsen,” he said.
The headline index gauging big manufacturers’ sentiment stood at plus 18 in the final quarter of 2021, unchanged from the previous quarter and below a market forecast for plus 19, the Bank of Japan’s (BOJ) tankan survey showed on Monday.
Rising costs and auto output disruptions hit industries such as non-ferrous metals, chemicals and machinery, it showed.
By contrast, big non-manufacturers’ sentiment improved for the sixth straight quarter at plus 9, up from plus 2 in September and exceeding market forecasts of plus 6.
The index hit the highest level since December 2019, as the Sept. 30 lifting of state of emergency curbs to combat the COVID-19 pandemic boosted morale among retailers.
But the survey, conducted for a month through Dec. 10, likely did not incorporate much of the recent spread of the Omicron variant, with nearly 80 percent of the replies coming in by Nov. 29.
Rising raw material costs add to uncertainty by squeezing profits of firms just emerging from the pandemic’s hit.
