–Sentiment Among Major Manufactures Flat After Recent Gains
–Non-Manufacturers Report Better Conditions on Eased Covid Rules
–Major Firms Revise Down Capex Plans From Sept But Still Up From FY20
–Smaller Firms’ Capex Plan Upward Revision Smaller Than Expected
(MaceNews) – Confidence among major manufacturers in Japan was unchanged in December from September as it had steadily recovered from the pandemic-hit 2020, while non-manufacturers – particularly in-person service providers, hotels and restaurants – reported a rosier picture, as the government eased its Covid restrictions on Oct. 1, according to the Bank of Japan’s quarterly Tankan survey released Monday.
Factories in Southeast Asia resumed operations after the Delta variant prompted lockdowns in August, alleviating supply chain constraints somewhat for automakers and electronics firms, but reports of an outbreak of the new Omicron variant in late November and surging producer costs are believed to be behind a more cautious outlook among most industries. The Tankan also showed labor shortages became more pronounced and conditions are seen tighter ahead.
The BOJ will digest this and other pieces of data ahead of its policy meeting on Dec. 16-17, at which the bank is expected to leave its accommodative easing stance unchanged as consumer prices remain subdued just above zero despite a 41-year high in producer price gains. The focus is on the Jan. 17-18 meeting, when the bank releases its quarterly Outlook Report to provide updates on board members’ medium-term GDP and CPI forecasts.
The Tankan survey also showed that large companies revised down their plans for business investment in equipment for fiscal 2021 ending next March. Smaller firms continued revising up their capex plans as they often do toward the end of the fiscal year, but their upward revision was smaller than forecast.
Key points from the BOJ Tankan conducted from Nov. 10 until Dec. 10:
* Among industries reporting better conditions are oil refineries and textile makers as well as producers of production and business machinery on the back of reopening demand. By contrast, the sentiment index for large carmakers slipped to -8 from -7 amid lingering global chip shortages while producers of non-ferrous metals (down to 21 from 33) and lumber and wood products makers (down to 19 from 24) reported larger declines in sentiment amid surging materials costs.
* Looking ahead, major manufacturers expect their sentiment to slip to 13 in March from 18 in December, with refiners, producers of lumber/wood products, paper/pulp and processed metals forecasting sharp drops. Large automakers projected a sharp rebound to 2 from -8 as they expected a further easing in tight parts supply.
* The Tankan index measuring sentiment among major non-manufacturers jumped to 9 in December from 2 in September and 1 in June, which was the first positive figure in five quarters. It has improved from -1 in March and -5 in December 2020. The result was stronger than the median economist forecast of 6.
* The improvement was led by sharp gains among companies providing services for individuals, which include hair dressing, weddings/funerals and gyms (rising to -9 from -45) as well as hotels/restaurants/bars (up to -50 from -74) but the levels of their sentiment remained low.
* Major non-manufacturers projected their sentiment would slip back to 8 in March from 9 in December. Companies providing services for businesses, leasing firms, information service companies expect sharp declines. Firms providing services for individuals as well as hotels and restaurants projected a continued improvement ahead now that many people are fully vaccinated against coronavirus infections and the government plans booster shots, although the health and economic risks posed by the Omicron variant remain uncertain.
* Smaller manufacturers expect their confidence to remain at -1 March as an expected sharp rebound among automakers and a continued rise for food processors are seen offset by dimmer prospects for non-ferrous metal makers, oil refineries and chemical firms. Smaller non-manufacturers expect their sentiment index to fall to -6 from -4, with the construction and real-estate industries leading the decline.
* The diffusion index is calculated by subtracting the percentage of companies reporting deteriorating business conditions from the percentage of those reporting an improvement. A positive figure indicates the majority of firms see better business conditions.
FY21 Capex Plans Revisions Mixed
* The Tankan also showed that major firms planned to increase their business investment in equipment by a combined 9.3% in in fiscal 2021, coming in slightly weaker than the Mace News median economist forecast of a 9.6% rise (forecasts range from +8.0% to +10.2%). In the previous survey, they planned a 10.1% increase over fiscal 2020, when they saw an 8.3% drop in capex.
* Smaller businesses expect their capex plans for fiscal 2021 to rise a combined 5.1% (vs. an 8.5% drop in fiscal 2020), up slightly from a 4.7% gain planned in the previous survey. The figure came in much weaker than the median forecast of a 7.0% increase (range: +3.3% to +9.0%).
Firms See Continued Gains in Dollar, Euro Vs. Yen
* The average dollar/yen exchange rate assumed by all firms in all industries for fiscal 2021 was Y109.09, firmer than Y107.64 in September and Y106.71 in June. Companies assumed the euro/yen forex rate to average at Y127.71, up from Y126.50 about three months ago and Y125.27 six months earlier.