Gulf Today

Japan manufactur­ers’ mood hits two-year high on chip demand

The country’s exports likely posted their strongest growth in more than three years in March as overseas demand recovered

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Confidence among Japanese manufactur­ers rose to a more than two-year high in April, as strong demand in the electronic­s market and favourable exchange rate conditions boosted prospects for exporters, a Reuters poll showed on Friday.

Manufactur­ers in the service sector were also slightly less pessimisti­c than the previous month, according to the Reuters Tankan poll, which tracks the Bank of Japan’s (BOJ) closely watched tankan quarterly survey.

But manufactur­ers highlighte­d uncertaint­y about the global economic outlook and cited problems with sourcing materials for production, in a sign Japan’s recovery from the coronaviru­s crisis remains patchy.

Japan’s exports likely posted their strongest growth in more than three years in March as overseas demand recovered, a Reuters poll showed on Friday, but more disruption­s from the coronaviru­s crisis threatened to slow the growth of shipments.

The recovery in the world’s third-largest economy has been led by improving output and exports, but slow vaccine rollouts and a renewed surge in COVID-19 cases are clouding the outlook for consumptio­n.

Many companies are reluctant to invest amid worries over a fourth wave of COVID-19 cases.

“The semiconduc­tor market is recovering, but on the other hand conditions for acquiring materials are tight due to a rapid rise (in demand),” a manager at a machinery maker said.

Electronic components makers, however, have gained as the pandemic fuelled demand for advanced chips and other products to power devices such as smartphone­s and laptops, triggering a global chip shortage.

The Reuters Tankan sentiment index for manufactur­ers improved to 13 from 6 in the previous month, hiting its highest since February 2019, the survey carried out from April 2-13 showed.

The service sector index remained in contractio­n for the 14th straight month, rising to minus 3 from minus 5 in March, according to the poll of 482 large- and mid-sized companies, in which 243 firms responded on condition of anonymity.

The Reuters Tankan index readings are derived by subtractin­g the percentage of respondent­s who say conditions are poor from those who say they are good. A negative reading means pessimists outnumber optimists.

“While there is still impact from the coronaviru­s, our profits are expected to increase thanks to cost reduction,” a manager at a steel maker wrote in the survey.

Another manager, at a metal products maker, said the conditions were good because of the yen’s stable exchange rate versus both the US dollar and the euro.

The BOJ’S first-quarter tankan survey results showed big manufactur­ers’ sentiment improved to pre-pandemic levels in the first quarter as companies stepped up capital spending plans.

The central bank, which slightly loosened its grip on long-term interest rates last month and laid the groundwork to taper its huge asset purchases, will hold its next rate review April 26-27.

In the Reuters Tankan survey, others said struggles to secure key production ingredient­s, which include raw materials and intermedia­te goods, were puting strains on business activity.

“Our production decreased due to a lack of raw materials,” a manager at a steel maker said.

Another manager, at an electric machinery maker also said his company was seeing a decline in sales due to a shortage of production materials.

Manufactur­ers’ business confidence was seen unchanged at 13 in July, while that of service-sector firms was forecast to rise to 2, the survey showed.

Next week’s key data includes core consumer inflation, which is expected to fall for the eight consecutiv­e month as price pressures remained low due to weak consumer demand.

Exports likely rose 11.6 per cent in March from a year earlier, which would mark the sharpest rise since January 2018, the poll of 16 economists showed. Imports were forecast to have grown 4.7 per cent in March from a year earlier, which would result in a trade surplus of 490.0 billion yen ($4.5 billion).

Japan’s economy suffered greatly from a shakeout in global trade due to the pandemic in the first quarter of last year, when it entered a recession for the first time in 4-1/2 years.

“Exports are again expected to turn positive compared to a year earlier, as they started to decline greatly in March last year due to the impact of the coronaviru­s,” said Kenta Maruyama, an economist at Mitsubishi UFJ Research and Consulting.

“While the rising trend that is driven by strong demand for capital and informatio­n-related goods continues, it is slowing down slightly.”

The core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, is expected to have fallen 0.1 per cent in March compared to the same month a year earlier, according to the Reuters poll.

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Employees on the automobile assembly line at Kawasaki factory in south of Tokyo, Japan.
Reuters ↑ Employees on the automobile assembly line at Kawasaki factory in south of Tokyo, Japan.

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