TOKYO- Optimism in Japan’s services sector climbed to a 33-year high in the first quarter on booming tourism and rising profits from price hikes, a central bank survey showed, keeping alive market expectations of another interest rate increase before year-end.
That rosy mood was somewhat offset by sentiment for big manufacturers souring for the first time in four quarters due in part to auto output disruptions, underscoring Japan’s fragile economic recovery.
The survey outcome is among factors the Bank of Japan (BOJ) will scrutinize in its next meeting on April 25-26, when it issues fresh quarterly growth and inflation forecasts.
The April projections will draw market attention for any clues on how soon the BOJ could raise interest rates again, after having exited its massive stimulus program last month.
“Business sentiment was good overall and capital expenditure plans are fairly strong. The tankan probably leaves the BOJ with hope Japan will continue to see trend inflation accelerate,” said Tsuyoshi Ueno, an economist at NLI Research Institute.
“The results open scope for additional BOJ rate hikes.”
The headline sentiment index for big manufacturers slid to +11 in March from +13 in December, the tankan showed on Monday, as output disruptions at some Toyota Motor group plants hurt confidence among car, auto parts and steel makers. It roughly matched a median market forecast for a +10 reading.
By contrast, the index gauging big non-manufacturers’ sentiment improved to +34 in March from +32 three months ago, the survey showed, slightly exceeding a market forecast of a reading of +33 and increasing for the eighth straight quarter.
It was the highest reading since August 1991, when Japan’s economy was booming from an asset-inflated bubble.
Sentiment improved at retailers, property developers, construction firms and transportation services due to a surge in inbound tourism and a boost to corporate profits from price hikes, a BOJ official told a briefing.
Big firms expect to increase capital expenditure by 4.0 percent in the fiscal year starting in April, after a 11.5 percent rise in the previous year, the survey showed.
