Business sentiment among large manufacturers was unchanged in March from three months earlier and is expected to worsen, the Bank of Japan’s “tankan” survey showed Wednesday. The assessment reflected corporate caution despite earnings recovery amid a weaker yen and falling oil prices.
The central bank’s diffusion index for companies such as major carmakers and large electronics firms held steady at 12, weaker than the average forecast of 14 in a Kyodo News survey of economists. Looking ahead, the index is expected to worsen to 10 in June.
The index for nonmanufacturers including retailers and construction firms improved slightly to 19 from 17, apparently due to benefits from greater numbers of foreign tourists visiting Japan. That compares with the average projection of 16.
But they expect the index to worsen by 2 points to 17, indicating unclear prospects for domestic demand amid the lingering impact of the consumption tax hike in April last year.
The diffusion indexes represent the percentage of companies reporting favorable business conditions minus the percentage reporting unfavorable environments.
“The results reflected the weakness of economic rebound,” said Yasunari Ueno, chief market economist at Mizuho Securities Co., pointing to the lack of a driving force to lead economic recovery.
“The environment for exporting companies is not very good,” despite declining crude oil prices and the depreciating yen, as the rebound of the U.S. economy has started to slow and wariness has emerged over the Chinese economy, Ueno noted.
Reflecting their cautious outlook, big firms in all industries plan to cut capital spending by an average 1.2 percent this fiscal year through next March.
The index for small- and medium-sized firms worsened to 1 from 4 for manufacturers but improved to 3 from 1 for nonmanufacturers. It is expected to deteriorate to zero among manufacturers and to minus 1 for nonmanufacturers.
By sector, the index for both large automakers and electric manufacturers remained unchanged at 15.
The positive effects of a weaker yen, which makes exports more competitive and has bloated the value of overseas sales, have likely been offset by weak domestic sales.
Looking ahead, automakers expect the index to deteriorate to 6, while electronics makers forecast the figure to remain flat.
Some sectors have benefited from sharp declines in oil prices, with the index for chemical companies rising to 16 from 7.
Among nonmanufacturers, the index for retailers improved to 5 from minus 2 amid an increase in foreign tourists visiting the nation, while that for real estate firms climbed to 33 from 22, as the office vacancy rate in central Tokyo has continued to fall.
In the latest tankan, the BOJ surveyed a total of 11,126 companies between Feb. 25 and Tuesday, of which 99.4 percent responded.