Business sentiment among Japanese manufacturers continued to rise for a second consecutive month in February according to the Reuters Tankan poll. The outlook is for further improvement by May, although the increase is expected to be moderate.
In a recent report, it was highlighted that the economy grew at a faster rate than projected, reaching 2.8% annually in the October-December quarter, driven by increased business spending and an unforeseen rise in consumption.
For February, the manufacturers' sentiment index reached plus 3, the highest level since November, up from plus 2 in January, with a forecast to reach plus 5 in May. The positive change was mainly seen in the food and chemicals sectors.
However, some industries such as paper, pulp, and steel experienced a decline in sentiment in February.
Concerns were raised in the poll about the impact of U.S. President Donald Trump's plans to raise tariffs, leading to caution among clients regarding capital spending due to escalating Sino-U.S. trade tensions and economic conditions in China.
The survey, conducted by Nikkei Research for Reuters from February 4-14, involved over 230 companies out of 505 major non-financial Japanese firms, guaranteeing confidentiality. In the service sector, sentiment decreased slightly in February, with construction and real estate sectors showing the most significant decline, expected to remain stable in May.
Managers in the construction sector highlighted that rising labor costs are squeezing operating profits, outpacing price increases.