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Investing.com-- Japan’s economy is showing signs of a gradual recovery, supported by resilient industrial production, retail sales, and a steady labor market, according to ING analysts.
Despite some concerns in the manufacturing sector due to potential U.S. trade tariffs, overall economic sentiment remains positive, raising the likelihood of a Bank of Japan (BOJ) rate hike in May, ING analysts said in a note.
The latest Tankan survey, which measures business confidence, showed a mixed picture, analysts highlighted.
While large manufacturers saw a slight decline in sentiment, the non-manufacturing sector—including construction and services—maintained strong confidence levels. ING analysts noted that this optimism stemmed from solid wage growth and an increase in foreign tourism, which could contribute to inflationary pressures.
Hard data also suggests Japan’s first-quarter gross domestic product (GDP) will see modest growth, according to ING.
February’s industrial production and retail sales outperformed market expectations, with retail sales even seeing an upward revision for January. Additionally, labor market conditions remain tight, with the unemployment rate improving to 2.4% from 2.5%, ING noted.
"With inflation staying above 2%, backed by strong wage growth and consumption, we expect the BoJ to deliver a 25 basis-point hike in May," analysts wrote.
However, they cautioned that economic confidence could weaken in the coming quarters due to U.S. tariffs, particularly on automobiles and steel.
Despite these risks, for now, Japan’s recovery appears to be on a stable footing, ING analysts added.