Japan manufacturers gloomy as global slowdown hurts – Reuters Tankan

TOKYO  – Big manufacturers in Japan remained gloomy in February and the service-sector mood slid for a second straight month, a Reuters’ poll showed, a sign that the global slowdown is holding back the country’s recovery from COVID-induced economic doldrums.

The monthly Reuters Tankan, which closely tracks the Bank of Japan’s (BOJ) key tankan quarterly survey, found the sentiment index for big manufacturers stood at -5 in February, little changed from the prior month’s -6.

The mood in the service sector slid for a second straight month to 17, down from a three-year high of +25 seen in December and underlining concerns about private consumption, which accounts for more than half the Japanese economy.

Respondents expected gradual improvement in conditions over the coming three months.

The survey asks respondents whether the business situation is good, not so good or bad. The resulting index value is the percentage of “good” answers minus the percentage of “bad”.

Questions for the Feb. 8-17 poll were sent to 493 large Japanese non-financial firms, of which 244 responded, all on condition of anonymity.

Manufacturers in such sub-sectors as electric machinery and automobile and transportation equipment were among the least optimistic, with sentiment indices deeply negative, reflecting the companies’ loss of business from declines in car output and chip shortages.

Many firms also complained about rises in energy and commodity prices and weakness of the yen, both factors that have driven up import bills, increasing the cost of doing business, the poll showed.

“We have not been able to transfer rising costs of materials, gas and electricity to our customers. On top of that, wages are rising, all of which squeezes the business environment,” a manager of a metal processing firm wrote in the survey.

Firms were cautious about increasing capital spending to raise exports in part because of the war in Ukraine, U.S.-China frictions and possible rises in infections in China following the lifting of COVID-19 controls there.

“The prolonged invasion of Ukraine by Russia, a spike in energy costs, price hikes and rising interest rates appear to have sapped not only consumer appetite for spending but also business investment,” a manager at a machinery maker wrote.

A manager at a transport company commented: “The environment surrounding logistics and manufacturing remains severe due to coronavirus, chip shortages, yen weakness, price rises in raw materials, the Ukraine crisis and shortages of fuel and crops.”

The BOJ’s last tankan showed that in December the mood of big manufacturers had soured in the final quarter of 2022 to the lowest level in nearly two years, as cost pressures and the prospect of slowing global demand clouded the outlook.

Japan’s economy averted recession in the fourth quarter but rebounded much less than expected as business investment slumped.