About 80% of Japanese company executives expect the economy to expand over the next six months. With the trend of rising real wages continuing, personal consumption is anticipated to show signs of recovery. The most common response for the timing of the Bank of Japan (BOJ)'s next rate hike was between January and March 2025.
According to the "Survey of 100 Company Presidents" released by the Nihon Keizai Shimbun on the 24th, 76.6% of respondents answered that the Japanese economy would "expand" or "expand moderately" six months from now. The business conditions diffusion index (DI), which subtracts the percentage of companies reporting "bad" conditions from those reporting "good," rose 12 points from the previous survey to 36. This marks the second consecutive quarter of an upward trend in the business conditions DI.
In this survey, 71.7% of respondents said that the Japanese economy "expanded moderately" compared to the previous quarter. The most cited reason for this was the recovery in personal consumption (78.8%).
In particular, the Ministry of Health, Labour and Welfare of Japan reported that real wages in June exceeded the level of the same month two years and three months ago, strongly confirming expectations that consumer sentiment will continue to improve. Akihiko Ogino, President of Yamato Securities Group, predicted, "Real wages will maintain a positive trend even after the July-September quarter." Tsuyoshi Shinra, President of Suntory Holdings, also expected consumption to increase in the latter half of 2024.
Company executives also closely monitored the BOJ's monetary policy decisions. The BOJ ended its long-standing negative interest rate policy with a rate hike in March and decided on another increase in July. At the meeting on the 20th, the BOJ kept rates unchanged. In this survey, the most common response for the timing of the next rate hike was January to March next year (31.3%), followed by 29% expecting an additional hike within this year.
These interest rate decisions inevitably affect companies' financing activities. 72.7% of companies planned or were considering raising funds within six months. Nearly 90% of companies responded that their financing costs had "significantly" or "slightly" increased due to the rate hikes and other factors. The newspaper reported, "Companies are rushing to respond ahead of interest rate hikes by increasing long-term fixed-rate borrowing while interest rates are still low."
Additionally, the stable exchange rate level suggested by executives was a median of 135 yen per dollar. Recently, the dollar-yen exchange rate has been fluctuating around the 143 yen level. The gap between the actual exchange rate and the stable exchange rate was as large as 22.82 yen in the previous survey but narrowed to a single digit as of this survey. This is also the lowest level since the survey included this question in March 2023.
Some concerns were also expressed about a recurrence of financial market turmoil similar to the sharp drop in the Tokyo stock market last August. Takahito Tokita, President of Fujitsu, said, "Due to rapid exchange rate fluctuations and stock price changes caused by the review of interest rates including foreign currencies, careful judgment is required in financial transactions. It is desirable to minimize sudden market fluctuations."
Furthermore, it was found that 80% of companies are reviewing or planning to review their Business Continuity Plans (BCP) for 2024 and beyond in response to large-scale natural disasters such as earthquakes and typhoons.
Meanwhile, this survey was conducted from the 3rd to the 19th of this month targeting executives of 145 major companies in Japan.
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