Japan corporate mood sours on fears of China-led global downturn

A man works at a factory at the Keihin industrial zone in Kawasaki, Japan Feb 28, 2017. REUTERS/Issei Kato/File Photo

TOKYO  – Confidence at big Japanese manufacturers fell the most in eight months, while morale in the services sector also slumped on worries a slowdown in China’s economy could be a bigger drag on growth globally and at home, a Reuters poll for September showed on Wednesday.

The gloom across the business sector underlines the challenge for Japanese policymakers and raises doubts that exports could fuel an economic recovery in the face of weak domestic demand.

The Reuters Tankan monthly poll of 502 big manufacturers, showed a sharp fall in the sector’s sentiment index to plus 4, from plus 12 in August. That was the biggest drop since January when the index declined 14 points.

The survey, which drew 248 responses during Aug. 30-Sept. 8, serves as a leading indicator for the Bank of Japan’s closely watched quarterly tankan survey due on Oct. 2, and also provides a quick health check of business conditions for the BOJ’s upcoming policy-setting meetings.

READ: Japan companies less confident about business conditions – Reuters Tankan

In written comments, many Japanese firms complained about elevated input costs of raw materials as well as weak demand at home and abroad. The Ukraine war and heightened Sino-U.S. tensions were also seen as headwinds.

“Our business conditions are not so good due to uncertainty surrounding the global economy such as geopolitical risks stemming from a prolonged war in Ukraine and rising tension between U.S.-China frictions,” a machinery maker manager wrote in the survey.

“Overseas markets, particularly in China, are slumping and domestic demand is also languishing,” a chemicals maker manger wrote on condition of anonymity.

Compared with three month ago, the manufacturers’ sentiment index — calculated by subtracting the percentage of pessimistic respondents from optimistic ones — was down four points and suggests decline in the quarterly tankan survey.

READ: Japan’s service activity growth softens in July – PMI

A positive figure means optimists outnumber pessimists.

The Reuters Tankan non-manufacturers index also dropped nine points to hit plus 23 in September from the previous month, the biggest decline since May 2020, the survey showed.

On the quarter, the service-sector index was down one point from June, pointing to a slight decline in the BOJ’s quarterly tankan.

The outlook indexes also suggested business conditions may remain challenging for the rest of the year. The business sentiment over the coming three months showed the manufacturers’ index flat in December and the service-sector index slightly down at plus 21 at year-end.