Japan manufacturers’ gloom rises, adds to growth pains

A worker checks machinery at a factory in Higashiosaka, Japan June 23, 2022. REUTERS/Sakura Murakami/File photo

TOKYO  —Japanese manufacturers’ business morale soured sharply in February with pessimists outnumbering optimists for the first time in 10 months, the Reuters Tankan survey found, adding to concerns about further economic decline.

The monthly poll, which closely tracks the Bank of Japan’s (BOJ) quarterly tankan, follows data last week that showed Japan unexpectedly tipping into recession in the fourth quarter and losing its spot as the world’s third-largest economy to Germany.

The loss of business confidence raises worries Japanese firms may become reluctant to boost wages enough to achieve stable and sustainable inflation in a country that has been mired in a deflationary mindset for more than a decade.

Speculation is rife that the Bank of Japan may exit its negative interest rates policy as early as March or April, if wage and price growth picks up enough.

READ: Japan Jan factory activity shrinks, but service sector picks up

The Reuters Tankan is among various data points the BOJ closely scrutinizes in making such assessments.

Rebound in May

The poll of 499 big non-financial Japanese firms found that manufacturers’ sentiment tumbled to minus 1 in February from the prior month’s plus 6, the first negative reading since last April. The index is seen rebounding to plus 6 in May.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists. Roughly half the companies surveyed responded on condition of anonymity.

READ: Japan’s Dec real wages, household spending fall again

“Domestic consumption has weakened since last year. Automobiles are selling well, but rising prices put a drag on appetite for consumer demand, particularly for food and daily necessities,” a manager of a chemicals firm wrote in the survey.

The service-sector index declined to plus 26 in February from 29 seen at the start of this year. The index is expected to fall further to plus 23 in May.