By Kantaro Komiya

TOKYO, Reuters – Japanese manufacturing confidence dropped to a seven month low in November, due to continuing supply shortages. Meanwhile, sentiment in the service sector rose to a three-month high in response to the removal of coronavirus curbs. The Reuters Tankan poll revealed that Japanese business confidence was at its lowest level in seven months.

According to the poll that tracks the Bank of Japan’s quarterly Tankan survey, the mood of manufacturers declined in the third month of November. However, it showed that they are now more optimistic about the future.

In November, service-sector companies’ sentiment index increased slightly, and their 3-month outlook improved as the government lifted coronavirus restrictions that had been in place since September, due to declining COVID-19 rates.

A poll among 502 large and medium-sized businesses between Oct. 26th and Nov. 5 showed that managers remain concerned about commodity inflation and supply problems.

A manager of a machinery firm stated that the output reductions by carmakers due to a shortage in chips and rising steel prices have kept our profits and revenue below expectations.

The Reuters Tankan sentiment Index for Manufacturers fell to 13 in October from 16 in November – matching its lowest point since April – while the Service index rose to a 3-month high of 1, from minus 1.

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Japan’s recent economic recovery has been driven largely by exports. Consumption was affected by coronavirus restrictions. In addition, shortages of semiconductors and other supply restrictions have negatively impacted manufacturers. A reopening economy has been supporting the service sector.

The poll found that services firms did not see a significant boon to their business, despite the fact that there was still a lot of demand for them during the long period of COVID-19 curbs.

The COVID-19 emergency state restrictions were lifted by the government at September’s end. However, some curbs that were in effect from October in Tokyo and other large cities have since been relaxed.

According to a manager at a wholesale business, “The economy looked like it had reopened following the lifting of the emergency.” However, the recovery in demand continues to be slow.”

A BOJ tankan survey from October revealed an unexpected increase in the business mood of large manufacturers thanks to strong global demand.

Some BOJ board members raised concerns about supply chain problems as a risk to Japan’s economy during its October policy meeting. They decided that they would keep their ultra-easy monetary policies unchanged.

Both manufacturers and service companies are more positive about the future, as their three-month outlooks rose to 19 from 14, while that of manufacturers rose to 19 and 14 respectively, and 15 for those in services.

The optimistic outlook of Japanese automakers was the key to manufacturers’ improvement. They are Japan’s largest exporters. The industry is the No.1 export item, despite being particularly hit by supply shortfalls.

From 0 in October, the three-month forward looking reading for autos/transport machinery sector rose to +29.

Except for those who are heavily affected by the rising prices of commodities, all manufacturers were more optimistic about their future business prospects in February 2022.

A manager at a precision machine maker said that although our performance isn’t yet back to pre-pandemic levels, COVID-19 had impacted on it. The machine maker manager said that the company is on the road to recovery.