— Higher Energy, Commodities Markets Support Some Producers
— Automakers Report Worse Sentiment As Supply Constrains Linger
— Face-To-Face Service Providers Suffer Amid Covid-19 Spike
— BOJ Survey Also Shows Companies Revise Up FY21 Capex Plans
By Max Sato
(MaceNews) – Higher energy and commodities prices this year further boosted confidence among many manufacturers, big and small, while the auto industry was hit by lingering global semiconductor shortages and worsening supply chain disruptions amid a spike in Covid-19 cases, according to the Bank of Japan’s quarterly Tankan survey released Friday.
The Japanese government expanded the areas under restrictions on the flow of people and business operations in August, hurting sentiment among retailers and firms providing services to individuals (hair dressing, weddings/funerals, gyms, etc.), limiting improvement or denting confidence among many non-manufacturers.
Many industries shared a cautious outlook for the coming three months as supply chain constraints are expected to continue, materials prices remain high and there is uncertainty over how economies can control the spread of the pandemic.
The survey also showed that large companies further revised up their plans for business investment in equipment for fiscal 2021 ending next March while smaller firms also revised up their capex plans, as they often do toward the end of the fiscal year. Some sectors need to invest in automation to cope with constant labor shortages while others are upgrading their communications networks.
The key points from the BOJ Tankan conducted from Aug. 26 until Sept. 30.
- The Tankan diffusion index showing sentiment among major manufacturers rose to +18 in September from +14 in June, +5 in March and -10 in December, marking the fifth consecutive quarterly improvement. It was stronger than the median economist forecast of +13.
- Among the industries reporting better conditions are paper mills, steel makers and oil refineries as well as producers of machinery, lumber and textiles. By contrast, the sentiment index for large carmakers slumped to -7 from +3.
- Looking ahead, major manufacturers expect their sentiment to slip back to +14 in December (the median economist forecast was +15), with producers of lumber, chemicals and non-ferrous metals forecasting a pullback amid uncertainty over global growth. Automakers project a rebound.
- The Tankan index measuring sentiment among major non-manufacturers edged up to +2 in September from +1 in June, which was the first positive figure in five quarters, after -1 in March and -5 in December. The result was firmer than the median economist forecast of zero.
- The slight improvement was led by better conditions among firms providing services to businesses, wholesalers and transportation/postal services.
- Major non-manufacturers projected their sentiment would inch up to +3 in December. As seen in the previous survey, companies providing services for individuals as well as hotels and restaurants projected better times ahead on hopes that more people will be fully vaccinated and the government will lift restrictions after a gradual easing phase.
- The sentiment index for small and medium manufacturers rose to -3 in the latest survey from -7 three months earlier (the median forecast -9) on the back of the general recovery trend in commodities prices and reopening demand for Japanese machinery. The index for their non-manufacturing counterparts dipped to -10 from -9 (the median forecast -11) as smaller retailers suffered as shoppers shied away amid rising Covid cases.
- Smaller manufacturers expect their confidence to slip to -4 in December (the median forecast -6) from -3, led by producers of steel, non-ferrous metals and automobiles. Smaller non-manufacturers expect their sentiment index to drop further to -13 (the median forecast -9) from -10, with communications and information services particularly bearish.
- 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 Revised Up Further
- The Tankan showed that major firms planned to increase their business investment in equipment by a combined 10.1% in fiscal 2021, coming in stronger than the median economist forecast for +9.1%. In the previous survey, their plans called for a 9.6% rise.
- Smaller businesses expect their capex plans for fiscal 2021 to rise a combined 4.7%, above than the median forecast of a 1.6% rise. In June, those firms had planned a 0.9% increase for the current fiscal year.
Firms See Stronger Dollar, Euro Vs. Yen
- The average dollar/yen exchange rate assumed by all firms in all industries for
fiscal 2021 was Y107.64, firmer than Y106.71 in the June Tankan. Companies assumed the euro/yen forex rate to average at Y126.50 up from Y125.27 three months earlier.
BOJ Policy on Hold For Now
The Japanese currency has depreciated in recent trading. The BOJ is expected to maintain its stimulative policy stance for at least a few more years in an uphill battle to guide near-zero inflation toward its 2% target while other major central banks are reducing the pace of emergency asset purchases or considering tapering soon.
The BOJ’s nine-member board will digest the Tankan and other indicators as well as reports from BOJ branch managers, who will gather on Oct. 7, to update its medium-term growth and inflation forecasts in the bank’s quarterly Outlook Report to be released after its next policy meeting on Oct. 27-28.
At its latest meeting on Sept. 21-22, the bank decided to maintain its stimulative policy, as expected, to support a gradual recovery from the pandemic-caused slump and continue its eight-year-old campaign to guide low inflation toward stable 2%.
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Contact this reporter: max@macenews.com
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