By Peter Bergman (MoneyAmped.com)
The results of a recent monthly poll conducted by Reuters indicate that the level of business confidence among large Japanese service sector firms and manufacturers fell in April compared to the previous month. Rising living costs and uncertain economic conditions in China, a significant market for Japan, can be attributed to this drop in sales.
According to the findings of the Reuters Tankan survey, the depreciation of the yen to levels that have not been seen since 1990, when the asset-inflated bubble was at its peak, is increasing the price of imports, which is having a negative impact on households’ consumption.
Furthermore, the survey found that the volume of shipments has not experienced the same level of benefits as the value of exports, despite the fact that the depreciation of the currency has had a positive impact on the value of exports.
Slight Decrease in the Sentiment Index
A decrease was recorded in the Reuters Tankan sentiment index for manufacturers, which went from a figure of 10 the previous month to a current reading of plus nine at present. The performance of the chemical and food processing industries can be credited with contributing to this decline.
Although retailers made some progress, the services sector index fell from a positive 32 in the previous month to a positive 25 in the current session. The survey, which was carried out from the 3rd to the 12th of April, revealed that the sentiment indexes of both industries are anticipated to experience a slight improvement over the subsequent three months.
When the Japanese currency reached its lowest point in 34 years against the dollar, surpassing 153 yen, the monthly Reuters Tankan survey, which closely monitors the quarterly tankan survey conducted by the Bank of Japan, was carried out. Because of this, the authorities have issued a number of warnings, highlighting the fact that they are ready to take action in response to speculative or disruptive currency fluctuations. This week, the dollar reached a level that was higher than 154, surpassing the yen for the first time.
“According to an anonymous manager of a chemicals maker, it seems that the effects of a depreciated yen have positively influenced our sales. However, there is no indication of any improvement in terms of volume.”
The Reuters Tankan contacted 497 major non-financial companies in Japan, and 235 of them provided their responses during the survey period.
Japanese Companies Are Worried About Domestic Demand and External Factors
“Japanese companies, in general, are currently experiencing a positive trend towards increasing salaries. However, the rise in prices has significantly reduced consumers’ interest in buying products like food and everyday necessities,” stated a manager from a chemical company.
In addition to the delicate state of domestic demand, Japanese companies also expressed worry about external factors.
“The demand has yet to stabilize as a result of the delayed economic recovery in China and the uncertainty surrounding the future, such as the potential decoupling between the U.S. and Chinese economies,” stated an anonymous manager from a paper/pulp manufacturer in a survey.
The latest tankan report from the BOJ revealed that optimism in the services sector reached its highest level in 33 years during the first quarter. This surge in positivity can be attributed to the increase in inbound tourism and the rise in profits resulting from price increases. However, the survey also revealed a decline in confidence among major manufacturers, marking the first decrease in four consecutive quarters.
On Monday, new data revealed a significant recovery in Japan’s core machinery orders, which is a crucial indicator of capital spending. This positive development is a promising indication of strong domestic demand.
However, the general economic momentum thus far in the year has indicated a lack of demand, which hinders the possibility of a strong recovery in the short term. That is one of the reasons why the Bank of Japan has indicated a careful approach to additional monetary tightening after its significant move to eliminate negative interest rates last month.
The Reuters Tankan indexes are derived by deducting the proportion of respondents with a negative outlook from those with a positive outlook. Optimists prevail when the number of positive individuals surpasses that of pessimistic individuals.
