Japanese manufacturers' and service providers' business confidence held steady at high levels in July, a Reuters poll found on Wednesday, underlining the Bank of Japan's upbeat view on the economy as it prepares for its next policy decision. David Pollard reports.
It's one more step in the right direction in a reluctant Japanese recovery. The Reuters Tankan survey pointing to a continued feel good factor for services. A survey reading of 33 maintains a two-year high. Manufacturing's 26 means sentiment there is still at a ten-year high. (SOUNDBITE) (English) JEREMY STRETCH, HEAD OF G10 FX STRATEGY, CIBC, SAYING: "In simple terms looking at the Tankan and if you look at the employment sector, if you look at the jobs to applicant ratio, you could argue that are grounds for some degree of optimism regarding the Japanese economic outlook." But the issue that has weighed on that recovery continues to do so. (SOUNDBITE) (English) JEREMY STRETCH, HEAD OF G10 FX STRATEGY, CIBC, SAYING: "The problem is of course that if you just look purely at monetary policy in relation to the inflation target the outlook still remains rather clouded shall we say." In other words, inflation - or the lack of it. The Bank of Japan likely to upgrade growth at its policy announcement this week .... But unlikely to show any sign of pulling back on its massive programme of stimulus - designed to lift inflation back towards a two per cent target. (SOUNDBITE) (English) JEREMY STRETCH, HEAD OF G10 FX STRATEGY, CIBC, SAYING: "I think Mr Kuroda's tenure out to April 2018 will still be characterized by a very easy monetary policy stance, certainly in contrast with what we're seeing in almost every other jurisdiction." As for the road ahead .. A weakening dollar could pressure the yen upwards and cap gains for exporters. Japan's economic wobbles may not be over yet.