Japan business mood up, global slowdown weighs on outlook – Reuters Poll

TOKYO  – Sentiment of big Japanese manufacturers rose for the first time in four months in December, and the service-sector mood hit a three-year high, a Reuters monthly poll found, in a sign of gradual recovery from COVID-19 doldrums.

Reflecting uncertainty in the outlook, however, the monthly poll, which parallels the Bank of Japan’s (BOJ) tankan quarterly survey, found large manufacturers expected business conditions to hold steady in the coming three months, while the service-sector had a worsening outlook.

The mixed readings underscored the uneven nature of Japan’s recovery from the pandemic, as a slowdown in China raises the risk of a global downturn while a possible COVID-19 resurgence in Japan clouds the outlook.

The December sentiment index for large manufacturers stood at +8, up from +2 a month earlier, according to the survey, which was conducted from Nov. 22 to Dec. 2. That was the first rise since August. Improved sentiment was led by producers of manufactured goods, such as metal products and machinery for transport equipment.

The service-sector index rose to +25 from the +20 seen in November. It was the best reading since October 2019, with respondents in the information and communications subsector among the most optimistic.

For each category in the survey, the result is the percentage of respondents that are optimistic minus the percentage that are pessimistic.

Despite the improved index numbers, comments from respondents were often cautious.

“We are up against the wall due to high energy costs, a weak yen, price hikes, a downturn in Europe, rising U.S. inflation, prolonged war in Ukraine, loss of stay-at-home demand and shortages of parts,” a manager of a machinery maker wrote in the survey. “It’s difficult to make the next move as the global economy slows.”

Since the questions in the survey are much the same as those in the central bank’s survey, quarterly moves in the Reuters data give some indication of what will be seen in the next BOJ tankan report, on Dec. 14.

For big manufacturers, the Reuters December index value was down 2 points from September, suggesting that the next headline figure from the BOJ tankan index for them will slip a tad.

The service-sector index was 14 points higher in December than three months earlier.

Asked whether they expected business conditions to improve or worsen over the coming three months, the result for big manufacturers was the same as for December conditions, +8. For service-sector firms, the March outlook, at +20, was 5 points weaker than the December figure.

The BOJ’s latest tankan report showed manufacturer’ mood had worsened in the three months to September, as stubbornly high material costs clouded the outlook for the fragile economy.

Japan’s economy unexpectedly shrank in the third quarter for the first time in a year, as global recession risks, a weak yen and higher import costs hurt consumption and businesses.