–Fall in Sentiment After Recent Improvement Not As Bad As Forecast
–Major Firms Revise Down FY21 Capex Plans, See Small Rise in FY22
–Smaller Firms Unexpectedly Revise Down FY21 Capex Plans; Cautious of FY22
(MaceNews) – Confidence among many sectors in Japan slipped in March after improving for the sixth straight quarter in December but the slump was smaller than expected as firms tried to live with Covid restrictions imposed during much of the first quarter and weather a spike in costs triggered by the war in Ukraine, the Bank of Japan’s quarterly Tankan business survey released Friday showed.
Manufacturers are struggling to meet reopening demand amid global semiconductor shortages and supply chain constraints. The Omicron-led spike in Covid cases forced carmakers to suspend production in January. Industrial production in Japan was nearly flat in February despite a rebound in auto output.
It is unclear whether the Tankan results fully reflected the impact of the March 16 earthquake that rocked northeastern Japan, causing Toyota and others to temporarily halt some factory operations due to damage to their parts suppliers, and also forcing businesses and households to conserve energy to avert a blackout in the Tokyo metropolitan area.
Non-manufacturers suffered from slower business as consumers became more cautious about shopping at physical stores, visiting tourist spots and participating in public events.
The survey also showed large companies turned more cautious about their capital investment plans than expected for fiscal 2021 while smaller firms revised down their capex plans, failing to make their usual upward revisions toward the March 31 end of every fiscal year. Business investment plans for fiscal 2022 came in weaker than predicted by economists.
The BOJ will digest this and other pieces of data ahead of its next policy meeting on April 27-28, at which the bank is expected to leave its easing stance unchanged as Japan’s gradual consumer inflation pickup from just above zero is unlikely to be anchored around the bank’s 2% target any time soon.
The bank’s branch managers will report on regional economic conditions at a quarterly meeting in Tokyo on April 11 ahead of the April 28 release of the quarterly Outlook Report, in which the bank provides updates on board members’ medium-term GDP and CPI forecasts.
The key points from the BOJ Tankan conducted from Feb. 24 until March 31.
* The Tankan diffusion index showing sentiment among major manufacturers dipped to 14 in March from 17 (revised from 18) in December. It was firmer than the median forecast of 11 in a Mace News survey of 10 economists (forecasts ranged from 6 to 15).
* The Tankan index measuring sentiment among major non-manufacturers slipped to 9 for March from 10 (revised from 9) in December but was well above 2 in September. It was stronger that the median forecast for 5 (range: 2 to 7).
* Looking three months ahead, major manufacturers expect their sentiment to fall further to 9 (the median economist forecast was 11) while major non-manufacturers see their sentiment slip to 7 (the forecast was 8).
* The sentiment index for smaller manufacturers stood at -4 (minus 4) for March, down from -1 (minus 1) in December. It was better than the median economist forecast of -7, with forecasts ranging from -12 to -5.
* The index for their non-manufacturing counterparts also fell to -6 from -3 (revised from -4) three months earlier, coming in firmer than the consensus forecast of -9 (range: -12 to -4).
* Smaller manufactures expect their June sentiment index to edge down to -5 from -4 in March while smaller non-manufactures expect their sentiment to slide to -10 from -6.
* 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, FY22 Capex Plans Weaker Than Expected
* Smaller businesses said their capex plans for fiscal 2021 would rise a combined 4.3%, unexpectedly revised down from a 5.1% increase seen in the previous survey and 4.7% about six months earlier. It was lower than the median forecast for a 5.8% rise.
* For the 2022 fiscal year that started on April 1, major firms plan to raise capex by a combined 2.2% over fiscal 2021, just below the consensus forecast of a 2.5% rise. Smaller firms plan to decease their combined capex plans by 11.4%, more than an 8.0% cut forecast by economists.
Surging Costs Not Fully Reflected in Sales Prices
* The Tankan input prices index (rise minus fall) continued to rise, reflecting surging producer prices, while the output prices index also showed increases from December but at a slightly slower pace than input prices, indicating firms, particularly retailers and service providers, have been cautious about fully charging rising costs for fear of losing market share or dampening consumption.
* The output prices index for large manufacturers rose by 8 points to 24 in March from 16 in December while their input prices index climbed by 9 points to 58 from 49. The gap is wider for major non-manufacturers. Their output prices index rose by 3 points to 13 from 10, but their input prices index jumped 10 points to 35 from 25. Similar patterns were seen for smaller firms.
Firms Continue to See Higher Dollar, Euro Vs. Yen
* The average dollar/yen exchange rate assumed by all firms in all industries for
fiscal 2021 was Y110.00, firmer than Y109.09 in December, Y107.64 in September and Y106.71 in June. Companies assumed the euro/yen forex rate to average at Y128.01 in the March survey, up from Y127.70 in December, Y126.50 in September and Y125.27 in June.
* For fiscal 2022, the average dollar/yen exchange rate assumed by all firms in all industries is Y119.93 and the euro/yen rate is Y128.18, both slightly higher than their rates for fiscal 2021.