Business / Economy

Manufacturing sentiment in Japan lowest in six years but still better than feared, tankan shows

Bloomberg

Fears over the global economy and the impact of the consumption tax hike have made manufacturers gloomier about business conditions, the Bank of Japan’s latest tankan shows, but not necessarily by enough to push the central bank closer to issuing extra stimulus later this month.

Confidence among Japan’s biggest product makers, which include household names such as Toyota, Sony and Canon, fell to 5 from 7, according to the BOJ’s quarterly survey gauging the business mood released Tuesday. While that was the worst reading in more than six years, sentiment showed far more resilience than had been expected by economists, who figured the index would slide to 1.

The positive number means optimists among manufacturers still outnumber pessimists despite nine straight months of falling exports and trade tensions between the U.S. and China that cloud the outlook for global growth.

The tankan release followed figures showing continued strength in the labor market, with unemployment holding steady at the lowest level since October 1992. Neither result painted a picture of an economy in need of urgent central bank support.

The BOJ Policy Board will meet Oct. 30 and 31 amid heightened expectations that it might take additional action to support growth and inflation.

After its meeting last month, BOJ Gov. Haruhiko Kuroda said he had grown more inclined to add stimulus. The bank also called for a review of whether overseas developments risked killing off Japanese inflation.

The tankan results come with the economy at a vulnerable moment, with the consumption tax hike that was implemented Tuesday expected to sap domestic spending. Economists expect a 2.7 percent GDP contraction in the fourth quarter as consumers pull back.

Capital spending was among the weaker results in the tankan. Investment plans for the year ending next March rose 6.6 percent, less than in the previous survey. The BOJ is paying particular attention to how the dip in sentiment is affecting business investment — a key prop for the economy given weakness in export demand.

Big companies outside the manufacturing sector, which have supported growth given the weakness among manufacturers, continued to show greater optimism, though sentiment fell to 21 from 23 three months ago.

“You can’t say that this tankan shows weakness among manufacturers is starting to affect domestic demand,” said Hideo Kumano, an economist at Dai-Ichi Life Research Institute. “This is a good outcome for the BOJ that doesn’t ramp up pressure on them to act.”

Delving into the figures, economists noted improved sentiment among electrical equipment makers, a potential early sign that they see the worst of the global tech slump as having passed.

But a sharp deterioration in the mood of firms in the lodging and restaurant sector may point to expected drops in inbound tourism as a spat between Tokyo and Seoul deters Korean travelers from visiting Japan, some economists said.

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