Bank of Japan’s quarterly Tankan survey gave a reading of minus 10, compared with minus 27 in the third quarter and minus 34 in the June quarter. Japan’s automotive sector improved significantly, recovering by 48 points to a reading of minus 13. In the fourth quarter, new car sales recovered to 2019 levels, and vehicle exports also grew. The industrial machinery sector also scored strongly, indicating that demand was reviving in Japan’s main export markets. Sectors most affected by the coronavirus pandemic – wallowed at a reading of minus 66. While the service sector has benefited from some government stimulus measures, such as Go To campaign to promote domestic travel, it remains vulnerable to a rise in new Covid-19 cases. Business confidence in these industries could suffer again if restrictions are reimposed.
It was important not to overstate the importance of the Tankan poll in the light of the coronavirus pandemic. Employment conditions continued to indicate an understaffing trend, especially among small non-manufacturers, underscoring the structural persistence of Japan’s labour shortage. 2020 capital expenditure plans of large companies were lowered to minus 1.2%, meaning lowered spending, in December from 1.4% in September, marking the first outlook for a decline at this stage since the minus 13.8% recorded in the December 2009.