Japanese manufacturers’ optimism is soaring, rising to the highest levels seen in almost four years during the month of August while services firms turned positive about their future outlook, an encouraging indicator about the progress in recovering from the pandemic driven downturn. The latest Reuters Tankan survey shows that the manufacturing sentiment index surged to 33 in August from 25 in July, hitting the highest level seen since January 2018.

Manufacturers sounded upbeat about their recovery on the back of strong external demand even as they anticipated domestic consumption levels to pick up over the coming months. Japan’s export-oriented economy is likely to be supported by the soaring demand for semiconductors and hi-tech goods, especially industrial products and automotive parts, from around the world.

Meanwhile, the service index rose above the threshold of 0 to +5 in August from -3 in July, indicating optimism. This is the highest reading for the index seen since pre-pandemic levels – the last time this index was at such levels was back in February 2020.

Unlike the strong level of confidence expressed by manufacturing firms, services firms remain uncertain about the spread of the pandemic as well as the ongoing increase in raw material costs impacting their businesses in the coming months. Currently, almost 60% of Japan’s population is under an extended state of emergency as the nation grapples with the latest wave of the pandemic.

The positive mood lends a further boost to expectations that Japan could be slowly working its way back towards recovering from the coronavirus crisis. Earlier this week, the world’s third largest economy released its GDP report, revealing a growth of 1.3% in Q2 2021 powered by exports and higher than expected domestic consumption.