Japanese Manufacturing Soars Owing to Supply Chain Recovery

Sentiment at major Japanese manufacturers rose for the second month in a row, as the auto industry recovered from last year's semiconductor shortage and supply chain issues, according to a monthly Reuters Tankan survey.

According to the November-December survey, the sentiment index for manufacturers was plus 12 in December, up from plus 6 the previous month.

"As chip shortages subsided, car production increased." However, the worsening state of China's economy and sluggish sales of Japanese vehicles in the Chinese market continue to be sources of concern," a manager at a textile manufacturer wrote in the survey's comment section.

The result is likely to reinforce expectations that Japan's economy is bottoming out after contracting by a preliminary annualised rate of 2.1 per cent in the July-September quarter. Economists believe the economy will show moderate growth in the current quarter, also helped by a pick-up in capital expenditure. The poll also showed the service sector index at plus 26, down from plus 27 in November.

The index readings are calculated by subtracting the percentage of pessimistic respondents from optimistic ones, with a positive figure indicating optimists outnumber pessimists.

The Reuters monthly poll serves as a leading indicator for the Bank of Japan's closely watched quarterly tankan survey, which is scheduled for December 12 at 2350 GMT. According to the Reuters poll, the manufacturers' index was 8 points higher than three months ago, while the service sector index was 3 points higher.

Looking ahead to the next quarter, the mood was less upbeat, with the manufacturers' index expected to fall to plus 8 in March, while the service sector index was expected to rise to plus 24. Under the condition of anonymity, 240 firms responded to a survey of 501 large corporations.