Rising costs sour Japan’s business mood
> But analysts upbeat as companies plan to raise capex
TOKYO: Japanese business sentiment worsened for the first time in two years in the three months to March, a closely watched central bank survey showed yesterday as rising raw materials and labour costs weigh on an otherwise steady economic recovery.
A strong yen and simmering fears of a trade war, triggered by US President Donald Trump’s move to impose tariffs on Chinese goods, could further undermine corporate morale if threats of retaliation escalate, analysts say.
But few analysts expect the economic recovery to falter as business confidence remains at a decade-high level and companies plan to increase capital expenditure.
“Yen gains since late January have eroded manufacturers’ sentiment but solid global economic fundamentals helped offset the pain.
“Overall, you can say that business confidence held firm,” said Yuichiro Nagai, an economist at Barclays Securities.
“Fears of a global trade war have had a limited impact on business sentiment so far.
But depending on development of US trade policy, protectionism could weigh on the outlook.”
An index measuring big manufacturers’ confidence fell by two points to plus 24 in March, the Bank of Japan’s quarterly “tankan” survey showed, roughly matching a median market forecast of plus 25.
Non-manufacturers’ sentiment worsened by two points to plus 23 against a median forecast of plus 24, deteriorating for the first time in six quarters. Both big manufacturers and non-manufacturers forecast business conditions would sour three months ahead, the tankan showed, reflecting looming uncertainty over the fallout from Trump’s trade policy and a strong yen.
“This should not be taken as turning point for Japan’s economy although sentiment deteriorated slightly,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“Concerns are high over possible retaliation against US tariffs, but the global economy remains in a gradual recovery which is good for Japan’s value-added exports.”
About 70% of companies replied to the survey by March 12, after Trump unveiled steep tariffs on steel and aluminum imports but before his announcement of anti-China tariffs.
Big manufacturers expect the dollar to move around ¥109.66 on average during the year that began in April, much weaker than the current levels around ¥ 106.
If the yen’s gains continue, manufacturers may be forced to cut their optimistic profit forecasts – a worry for Prime Minister Shinzo Abe who is pursuing growth with reflationist policies. – Reuters