Confidence among Japan’s biggest manufacturers has slipped after five quarters of increases as a stronger yen dented exporter sentiment, a key central bank survey showed yesterday.
The Bank of Japan’s (BOJ) Tankan report — a quarterly survey of about 10,000 companies — showed a reading of 24 among major manufacturers in last month’s survey against 26 in the December report.
Confidence fell among chemicals, electrical machinery makers and other exporters as the average predicted yen rate for the business year ending last month appreciated to 109.66 to the dollar in the latest survey from above 110 yen in December.
The sentiment among iron and steelmakers tumbled to 10 from 19 as the US moved to impose hefty tariffs on steel and aluminum imports.
A strong yen is negative for exporters as it makes their products less competitive abroad and erodes profits when repatriated.
However, the latest Tankan hardly made economists pessimistic about the world’s third-largest economy, with the headline index still close to the highest level in over a decade.
Economists argue that Japan is on a solid recovery path on the back of a global economic recovery, with investments linked to the Tokyo 2020 Olympics also giving the economy a shot in the arm.
“The yen’s appreciation dented corporate confidence temporarily, but the underlying sentiment is solid, as seen in their plans to accelerate spending on plants and equipment,” UBS economist Takuji Aida said. “Weak stock prices [since February] have not prevented them from stepping up capital spending.”
The index for non-manufacturers also fell to 23 from 25, but Aida said it would also improve going forward, with increases in wages starting to translate into higher consumer spending.
“Readings in the next Tankan will likely turn upward,” he said.
The Tankan report, the broadest indicator of how Japan Inc is faring, marks the difference between the percentage of firms that are upbeat and those that see conditions as unfavorable.
Due to a triennial reshuffling of companies surveyed, the confidence for the quarter ending December last year was recalculated with the new base to make a comparison.
The latest survey came after a batch of solid economic data released on Friday, which showed factory production picked up in February, while the jobless rate stayed low.
Japan’s economy expanded by 0.4 percent in the fourth quarter of last year as it notched up its longest period of expansion since the “bubble” days of the 1980s.
The stock market kept soaring in January, but took a plunge in February on fears that the US Federal Reserve would embark on a sharper pace of interest-rate increases than previously expected to head off inflation.
“Looking forward, we do not see a deterioration,” Sumitomo Mitsui Trust lead strategist Katsunori Kitakura said in a commentary.
“Business sentiment might see some downward pressure until this year’s second quarter, but should recover toward year-end” as the global economy grows, he said.
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