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Japan's business sentiment hits 2-year low, trade war stings manufacturing

A private business survey showed manufacturing activity in Japan contracted for a second straight month in March, with output down at the sharpest rate in nearly three years

Reuters  |  Tokyo 

Tokyo, Japan at the control tower of Haneda Airport
Downbeat surveys bolstered the view that Prime Minister Shinzo Abe's reflationary policy dubbed

Japan's business mood slumped to a two-year low in the March quarter, a central showed, underscoring concerns that Sino-U.S. trade tensions and softening global demand were taking a toll on the export-reliant

The gloom was most pronounced among big manufacturers, where sentiment soured at the fastest pace in more than six years, stoking fears that uncertainty over the global outlook could discourage companies from spending on wages and expenditure.

Separately on Monday, a private business survey showed in contracted for a second straight month in March, with output down at the sharpest rate in nearly three years.

The downbeat surveys bolstered the view that Shinzo Abe's reflationary policy dubbed "Abenomics" is sputtering, keeping the under pressure to maintain or even ramp up its massive stimulus programme, analysts say.

If external weakness spreads to relatively firm domestic demand, that would pressure Abe to forego the twice-delayed sales tax hike, scheduled for October as he focuses more on growth than fiscal reform.

"We see overall weak numbers and the outlook is worsening, reflecting the slowdown in Japan's economy," said Hiroshi Miyazaki, at

"Eventually, the slowing will hurt employment, so there is a growing chance the BOJ will have to re-examine its policies," he said.

SALES TAX HIKE

The headline index for big manufacturers' sentiment stood at plus 12 in March, worse than plus 19 marked three months ago and a median market forecast of plus 14, the BOJ's closely-watched quarterly "tankan" survey showed on Monday.

The index hit the lowest level since March 2017 and fell at the fastest pace since December 2012, as manufacturers felt the pinch from slumping demand for electronics parts, automobiles and machinery goods, the survey showed.

The index for non-manufacturers fell to plus 21 from plus 24 in the December survey, hitting the lowest level since March 2017 and undershooting a market forecast of plus 22.

Both big manufacturers and non-manufacturers expect business conditions to worsen further in the three months ahead, the survey showed, suggesting the hit from simmering trade tensions could broaden.

For now, companies' spending plans are holding up. Big firms expect to increase capital expenditure by 1.2 percent in the year that began in April, compared with a median market forecast of a 0.4 percent decline.

But indices measuring price developments show companies are unable to raise prices of their goods much even as a tightening job market pushes up labour costs, a development that could hurt their spending appetite ahead.

"As long as domestic demand holds firm the sales tax will increase as planned, although you cannot completely rule out the possibility of further delay," said Masaki Kuwahara, a at

And signs of weakening demand are emerging at upstream manufacturers, including Nagumo Seisakusho Co, a small maker of precision moulds in the The company told earlier this year that orders have fallen sharply since late 2018 as its bigger clients suffered from slowing Chinese demand.

Factories across Japan depend heavily on Chinese customers, the world's second-biggest economy, to buy their products, especially the parts and equipment that reach China's manufacturers.

Big firms such as and Fanuc Corp; Mitsubishi Electric Corp, trading house and have also blamed as they cut profit forecasts.

The survey is among various data the BOJ will examine at its two-day rate review later this month, when it issues fresh quarterly economic growth and inflation projections.

The BOJ is in a bind. Years of its and prolonged ultra-low rates have dried up the bond market and squeezed profits at banks, prompting Japan's lobby to urge the BOJ to rethink its monetary stimulus.

Makoto Takashima, the new of Japan's lobby, told in an interview that lenders should not blame the BOJ's ultra-loose policy for their inability to boost revenue, in a comment that drew a contrast with those of his predecessor.

 

(Additional reporting by and Kaori Kaneko, Editing by Chris Gallagher, and Gopakumar Warrier)

First Published: Mon, April 01 2019. 10:41 IST
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