Japanese economy: Manufacturing sentiment down 1st time in 3 quarters: BOJ survey

Japanese economy: Manufacturing sentiment down 1st time in 3 quarters: BOJ survey

TOKYO — Business confidence at major Japanese manufacturers worsened for the first time in three quarters in the three months to September, weighed down by uncertainty over economic slowdowns overseas, according to the Bank of Japan’s quarterly Tankan survey, released Thursday.

     The headline index measuring sentiment at big manufacturers fell 3 points to 12. 

     However, the survey found that not all Japanese companies are feeling the effects of the slowdown in China and other emerging economies the same way. The diffusion index for companies of all sizes and across all industries rose 1 point to 8. The survey measures corporate sentiment by subtracting the number of companies saying business conditions are negative from those saying they are positive. 

     While companies upgraded their capital spending plans, the results pointed to lingering concerns over the future of Japan’s economy due to overseas factors.

     Among the 16 large manufacturing sectors surveyed, the index deteriorated in 11, improved in four and remained flat in one. The gloominess was especially strong in the production machinery and professional machinery segments, which do a lot of business with China, and the shipbuilding and heavy industry sectors, which also cater to emerging economies.

     Although the gauge for large companies across all industries remained unchanged from the previous quarter at 19, the reading for three months ahead deteriorated by 5 points. The weaker forecast was attributed to “concerns over the economic slowdown in China and other emerging countries and growing uncertainty over stock market gyrations,” said a BOJ executive.

     Of the 28 industry segments surveyed, large companies in 20 industries expect business conditions to deteriorate. In manufacturing, the index for the construction and other production machinery sector is expected to decline 15 points over the next three months due to a drop in capital spending in China. The index for the automotive and electrical machinery sector is also seen worsening.

     Among nonmanufacturers, the construction and real estate segments, which are enjoying strong office demand, expect business conditions to worsen over the next three months.

     The index for the hotel and restaurant services sector rose to a record 31 due to robust spending by visitors from China and elsewhere. However, the gauge is seen falling by 16 points three months down the road.

     Despite the uncertain outlook, domestic demand remains steady. Fixed investment, for example, “reflects strong demand for maintenance and upgrades,” said a BOJ executive.

     Big companies across all industries expect to increase fixed investment by 10.9% on the year in fiscal 2015, a huge improvement from the June survey.

     Large manufacturers assume an exchange rate of 117.39 yen to the dollar for fiscal 2015, 1.77 yen lower than in the previous survey. Japanese companies are expected to report a record pretax profit-to-sales ratio this fiscal year, helped by a weaker yen.

     If robust corporate earnings spur more capital investment and lift household income through wage hikes, domestic demand will likely grow even stronger. With the prolonged slowdown in China and other emerging nations hampering exports and production, growth in domestic demand is key to the outlook for Japan’s economy.

(Nikkei)

Japanese economy: Manufacturing sentiment down 1st time in 3 quarters: BOJ survey