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Japan’s Large Manufacturers’ Sentiment Drops to 2-Year Low

Japan’s large manufacturers’ business confidence worsened in December, the Bank of Japan (BOJ) said in its quarterly Tankan survey report on Monday.

According to the BOJ, sentiment dropped for the fifth consecutive quarter to its lowest level in more than two years, owing to higher costs for raw materials amid a possible global economic slowdown.

The key index measuring confidence among companies dropped to 1 from 7 in December, the BOJ said, with the reading coming in lower than median market forecast and marking the lowest level since minus-10 logged in December 2020.

The index for large non-manufacturers, including the service sector, meanwhile, increased to 20 from 19 in the previous survey, the BOJ said. This marked an improvement for the fourth successive quarter owing to easing effects of the COVID-19 pandemic.

The indexes reflect the percentage of companies reporting favorable business conditions minus the percentage of those reporting unfavorable conditions and the BOJ’s Tankan survey is regarded as a leading indicator of Japan’s economic health and serves as a guide for the central bank regarding the direction of its future monetary policy.

Looking ahead, manufacturers’ confidence is expected to improve to 3 from 1 while sentiment among non-manufacturers is forecast to drop to 15 from 20, the central bank here said.