Pessimism Persists At Big Japanese Manufacturers Amid Global Slowdown

Big Japanese manufacturers remained pessimistic about business conditions for a third straight month in March, the closely watched Reuters Tankan survey showed, reflecting worry about slowing global growth that could hurt the country’s export engine.

Service-sector firms’ mood rebounded in a sign of domestic demand-driven recovery, in which the prospects of higher wages among big firms at the spring labour talks may encourage households to spend their way out of the COVID-induced doldrums.

The mixed results underscored the fragility of the world’s No.3 economy as exports slow and private consumption, that accounts for more than half the economy, lacks momentum.

The Reuters Tankan, designed to closely track the Bank of Japan’s key quarterly tankan survey, suggested the central bank’s survey due next April 3 will likely show deterioration in business confidence at big manufacturers.

Problems at some western banks added to risks to external demand that already faces the impact of global tightening and a slowdown in China, Japan’s biggest trading partner, while a weak yen boosts import costs of commodity-driven inflation.

“Price hikes caused by the war in Ukraine and U.S.-China trade frictions have made our clients cautious about capital expenditure,” a manager of a machinery maker wrote in the survey.

The sentiment index for big manufacturers stood at minus 3, slightly up from minus 5 seen in the previous month, according to the survey conducted March 8-17. Materials industries such as steel and textiles as well as electrical machinery firms were among the hardest hit.

Compared with three months ago, the manufacturers’ index was down 11 points, suggesting worsening of sentiment in the BOJ tankan’s headline big manufacturers index.

The Reuters Tankan index is expected to rebound to plus 10 over the next three months.

The large service-sector firms’ index rebounded to plus 21 in March from plus 17 seen in the previous month. The index is expected to fall to plus 16 in June.

The Reuters Tankan, which closely tracks the central bank’s quarterly tankan survey, canvassed 493 large companies with a capital base of 1 billion yen employing 100 or more people.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.