BOJ Reports Decline in Business Confidence in Retail, Service Sectors

03 Jul, 2024

BOJ Reports Decline in Business Confidence in Retail, Service Sectors

Business confidence among major nonmanufacturing firms has seen its first decline since June 2020, as per the latest Bank of Japan (BOJ) survey. Released on July 1, the quarterly "tankan" survey revealed a 1-point drop in the diffusion index for these companies, now standing at plus 33. This index measures the balance between respondents reporting favorable versus unfavorable business conditions.

Previously bolstered by a post-pandemic recovery in consumer spending and increased tourism, especially benefiting sectors like retail and hospitality, overall sentiment has now been tempered by the impact of a weaker yen and rising labor costs. Despite the recent decline, the index remains relatively high, reminiscent of levels observed after Japan's asset-inflated economic boom of the late 1980s.

However, the downturn has notably affected certain industries more than others. Retailers, for instance, saw a significant decrease of 12 points, dropping their index to plus 19 from the previous survey in March. Similarly, the accommodation and food service sector recorded a 3-point decline to plus 49, influenced by both cost pressures and higher labor expenses.

Conversely, large manufacturers showed slight improvement, with their index rising 2 points to plus 13, signaling a degree of resilience amid broader economic challenges. The survey, based on responses from 9,076 companies between May 29 and June 28, underscores the mixed economic outlook and its implications for the BOJ's upcoming monetary policy decisions, particularly concerning inflation targets and investment perspectives.