Japan Manufacturers Confidence Reaches Highest Since 2021

Business sentiment among major manufacturers in Japan climbed to a four-year high in March, supported by a recovery in the semiconductor industry and strong performance in the chemicals and petroleum sectors. The Reuters Tankan poll, which serves as a precursor to the official central bank survey, showed the manufacturers' sentiment index rising to plus 18 from plus 13 in February, marking its highest level since December 2021. The chemicals industry led much of the gains, with its confidence index jumping to 21 from 13. This surge was attributed to increased demand for chip-related equipment and devices. > Sales to the semiconductor sector are strong for both equipment and devices. Optimism also soared in the petroleum and ceramics sector, where the index rose to 25 from 11, driven by a recovery in semiconductor markets and significant order growth. Similarly, the transport machinery sector, including automakers and component suppliers, saw its index rise to 36 from 33, reflecting solid vehicle production levels. However, the outlook remains clouded by geopolitical risks and weakening international demand. Tensions between the United States and Iran have weighed on certain industries, specifically textiles, paper, and pulp, where sentiment plummeted to 11 from 20. > The U.S.-Iran conflict has put customers in a wait-and-see mode, which has made it difficult to forecast future demand. The steel and non-ferrous metal sector remained weak at minus-25, despite improving from minus-44, as orders for automotive steel remained soft. In the non-manufacturing sector, sentiment was unchanged at 25, though retailers noted concerns regarding sluggish demand from China. The Bank of Japan is expected to keep interest rates steady during its upcoming meeting. While regional conflicts introduce uncertainty, the central bank is likely to signal its commitment to a rate-hike bias. Looking forward, manufacturers expect business sentiment to moderate to 14 by June, while non-manufacturers anticipate a decline to 21. The poll, conducted between March 4 and 13, surveyed 492 major non-financial companies, with 216 responding on the condition of anonymity.