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Japan Business Sentiment at 3-Year Low
World Economy

Japan Business Sentiment at 3-Year Low

Japanese manufacturers’ confidence worsened to the lowest in three years and is likely to deteriorate even further in coming quarter due to a strong yen and wobbly emerging economies, a Reuters poll showed.
Adding to uncertainty, concerns about the global economy have spiked after Britain voted on June 23 to leave the European Union, roiling financial markets and sparking fears that one of Japan’s biggest export markets could fall into recession.
The BOJ’s quarterly tankan business sentiment survey on Friday will likely show the headline index for big manufacturers’ sentiment fell by 2 points to plus 4 points from plus 6 points three months ago, the poll of 22 economists found.
That would be the second straight quarterly fall, matching the level seen in the June 2013 survey and the lowest since the March 2013 survey when big manufacturers’ mood stood at minus 8 points.
The poll was taken before Britain’s referendum on the EU, which knocked the Nikkei share average down 8% and saw the yen firm to 99 per dollar, the first time it appreciated beyond the 100 mark since late 2013.
Other data on Friday is expected to show the nation’s core consumer prices for May also likely fell at the fastest pace in three years, highlighting the problems facing the Bank of Japan as it battles to vanquish deflationary pressures and hit its elusive 2% inflation target.
“Japan’s economy lacks momentum and the yen’s rise hasn’t halted. Deterioration in big-manufacturers’ sentiment likely became notable due to the strong yen,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.
“The yen’s rapid appreciation and deepening uncertainty about external demand has increased the chance of the BOJ easing further in July,” he said.
Big non-manufacturers’ sentiment index probably worsened to plus 19 from plus 22, also deteriorating for a second straight quarter as a shopping spree by foreign visitors slowed.
In the coming quarter, business sentiment of both big manufacturers and non-manufacturers will worsen, according to the poll.
Big firms plan to increase their capital spending plans by 5.9% for this fiscal year, up from plans to cut capex by 0.9% in the March survey, it showed. Japanese firms typically upgrade their plans in June from March.
“We expect firms’ capex plan for this fiscal year will likely stay in a trend of moderately rising or steady. But manufacturers will become cautious about capital spending due to weakening earnings stemming from a strong yen,” said an analyst at SMBC Nikko Securities in the survey.

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