Business sentiment among large manufacturers worsened in March compared with three months earlier in the biggest point loss since December 2012, reflecting concerns over a slowdown in China and other overseas economies.
The Bank of Japan tankan, measuring confidence among companies such as carmakers and electronics firms, stood at 12, down from 19 in the December survey. The result, released Monday, was slightly weaker than the average market forecast of 13 in a Kyodo News poll.
The seven-point decline from December was the largest since December 2012, when Prime Minister Shinzo Abe’s current administration was launched, and came after the index remained unchanged at 19 in December. Large manufacturers forecast a further decline to 8 for the coming months, the survey showed.
The index represents the percentage of companies reporting favorable conditions minus the percentage reporting unfavorable ones.
A BOJ official said weak demand in Asian markets including China dampened sentiment among Japanese manufacturers such as electronics companies.
“Many manufacturers said they grew concerned over the outlook of the Chinese and other Asian markets on the back of slowing demand,” he said.
While expectations have been growing for a resolution to trade talks that began last year between the United States and China after they imposed hundreds of billions of dollars in tariffs on each other’s exports, the spat has hurt the global economy, including Japan’s exports to China.
“The worsened sentiment was attributable to a decline in exports of semiconductor-related products, but demand for them may rebound later this year after bottoming out around June,” said Junichi Makino, chief economist at SMBC Nikko Securities Inc.
The drop in the outlook among big manufacturers came as more of a surprise to analysts, suggesting corporate Japan doesn’t expect a quick end to the gloom surrounding the first quarter.
The deteriorating sentiment is likely to fuel concerns over the impact that the consumption tax hike scheduled for October will have on a weakened economy. The last rise in the consumption tax triggered an economic contraction.
Plans for capital spending, a pillar of economic growth recently, came in weaker than a year ago but a touch stronger than expected, suggesting that alarm bells aren’t ringing in company boardrooms yet.
By industry, machinery manufacturers were less optimistic due largely to a slowdown in the Chinese economy, while nonferrous metal producers and pulp and paper companies were hit by higher raw material costs.
Large manufacturers expected an exchange rate of ¥108.87 against the dollar for fiscal 2019 from April 1, stronger than the ¥109.41 assumed in the previous business year that ended in March. In general, a stronger yen hurts export-reliant manufacturers but lowers import costs.
Sentiment among large nonmanufacturers was down 3 points at 21 and was forecast at 20 for the coming months, with many respondents blaming a continuing labor shortage.
Large companies, classified as those with capital stock of more than ¥1 billion, said they plan to increase capital spending by 1.2 percent during fiscal 2019, slowing from a 13.9 percent increase the previous business year.
“Capital spending in fiscal 2018 was relatively firm, but a slowdown in the global economy could negatively affect companies’ fixed investment,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.
The BOJ surveyed 9,830 companies between Feb. 25 and last Friday, of which 99.4 percent responded.