Business Confidence Drops In Japan’s Retail, Service Industries

Business confidence among large nonmanufacturers dipped for the first time since June 2020, reflecting rising prices of raw materials due to the weak yen and surging labor costs, a Bank of Japan survey showed, Ayumi Sugiyama reported for Asahi Shimbun.

The first decline in 16 quarters indicates that higher prices stemming from the yen’s sharp depreciation are now weighing heavily on the companies.

The diffusion index for those companies fell 1 point to plus 33, according to the quarterly “tankan” business confidence survey for June released on July 1.

The index is calculated by subtracting the percentage of respondents that said business conditions are bad from the percentage of respondents that said business conditions are good.

A positive reading means that optimists outnumber pessimists. A post-pandemic recovery in consumption and demand from foreign travelers had brightened business sentiment among large nonmanufacturers, such as retailers, hotels, and restaurants.

The diffusion index still remains fairly high, similar to the level in late 1991 after the late 1980s asset-inflated economic boom. However, the first decline in 16 quarters indicates that higher prices stemming from the yen’s sharp depreciation are now weighing heavily on the companies.