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Sentiment index of major manufacturers at +1 vs. f’cast +3
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Sentiment among major service firms is improving after the economy reopens
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Tankan among data to be considered at next BOJ meeting
(Adds details from BOJ briefing, analyst quote)
By Leika Kihara and Tetsushi Kajimoto
TOKYO, April 3 (Reuters) – Japan’s business sentiment deteriorated from January to March, hitting its worst level in more than two years, a closely-watched central bank survey showed on Monday, as slowing global growth clouded prospects for the export-dependent economy .
On the other hand, sentiment in the services sector rebounded as the easing of border controls and an end to COVID-19 boosted hopes for a recovery in tourism and consumption, the Bank of Japan’s Tankan survey showed.
The survey will be among the key data the central bank will consider when preparing new quarterly growth and inflation estimates at its next meeting on April 27-28 – the first chaired by new Governor Kazuo Ueda.
The headlines index, which measures sentiment among major manufacturers, fell to plus1 in March from plus7 in December, Bank of Japan (BOJ) data showed, worse than an average market forecast of a plus3. It was the fifth Consecutive quarter of deterioration and worst level since December 2020.
Sentiment for a broad sector of manufacturers deteriorated, with many firms complaining about the impact of rising commodity and fuel costs, as well as slowing overseas growth and collapsing chip demand, a BOJ official said in a briefing.
The index of large non-manufacturers rose to plus 20 for a fourth quarter, from December’s plus 19, a mid-market forecast, the survey showed, as hopes of a recovery in tourism and services demand boosted morale among retailers and hotels .
Takeshi Minami, chief economist at the Norinchukin Research Institute, expects external factors, such as the impact of monetary tightening in the US and Europe, to weigh on Japan’s exports and business sentiment.
The story goes on
“Given Japan’s fragile recovery, the BOJ is not in a position where it can normalize monetary policy anytime soon,” he said.
Large companies plan to increase capital spending by 3.2% in the fiscal year that started in April, less than market forecasts for a 4.9% increase, the Tankan showed.
Businesses expect inflation to be 2.8% in one year, 2.3% in three years and 2.1% in five years. The survey shows that companies are preparing for inflation to remain above the central bank’s target of 2% in the coming years.
Japan’s economy narrowly avoided recession in the final three months of 2022, and analysts expect a recovery in the January-March quarter to have been moderate as slow wage growth and rising cost of living weighed on consumption.
Many large companies promised hefty wage increases in spring talks with unions, giving policymakers hope that consumption would recover and make up for the slack from an expected slump in exports.
The strength of the economy, as well as wage and inflation prospects, will be critical to how quickly the BOJ can adjust or end its policy of controlling bond yields, which has been criticized as distorting market prices and damaging financial institutions’ margins. (Reporting by Leika Kihara and Tetsushi Kajimoto; Editing by Sam Holmes)
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