By Max Sato
(MaceNews) – Japanese firms nearly across the board reported their sentiment improved substantially in December from three months earlier, thanks to Chinese and U.S. economic recovery as well as a gradual pickup in domestic demand, according to the Bank of Japan’s quarterly Tankan business survey released Monday.
But the survey also showed that large companies sharply revised down their plans for business investment in equipment in the current fiscal year ending next March over fiscal 2019, amid growing uncertainty over global growth as many cities around the world have been hit by renewed spikes in coronavirus infections.
The BOJ’s nine-member board will digest the Tankan and other indicators to assess Japan’s economic and financial health at its next two-day policy meeting ending around noon (0300 GMT) on Friday (2200 EST Thursday). The bank is expected to leave its very accommodative policy stance unchanged and is unlikely to add any monetary stimulus at this point despite sliding consumer prices and a slow recovery from the pandemic-caused slump.
Japan’s efforts to contain the spread of COVID-19 while gradually reopening businesses are at a crossroads. The government’s ‘Go To Travel’ subsidy campaign, which was launched in July, has caused a spike in coronavirus cases. The government has suspended discounts applied to the costs for traveling to two hot spots for three weeks.
The approval rating for Japanese Prime Minister Yoshihide Suga’s cabinet fell 17 percentage points to 40% in a weekend survey conducted by the Mainichi Shimbun newspaper from its previous survey about a month ago, as those polled are unhappy about the way the government is coping with the pandemic.
The key points from the BOJ Tankan conducted from Nov. 11 until Dec. 11.
* The Tankan diffusion index showing sentiment among major manufacturers surged to -10 in December from -27 in September, improving for the second straight quarter and coming in stronger than the median economist forecast of -14. Sharp improvements were reported by automakers, lumber and wood producers, steel mills and non-ferrous metal makers. Of the 18 categories of the sector, only one – the shipbuilding and heavy industry – said its confidence dropped from three months earlier.
* Looking ahead, major manufacturers expect their sentiment to rise further to -8 in March (the median economist forecast was -9), led by firms producing pulp and paper as well as production and general machinery. Food and beverages producers, oil refineries and electric machinery makers projected their sentiment would worsen three months ahead.
* The Tankan index measuring sentiment among major non-manufacturers climbed to -5 in December from -12 in September, coming in slightly firmer than the median economist forecast of -6. The improvement was led by hotels and restaurants, services for individuals as well as transportation firms, as more people took advantage of the government-financed discounts on domestic traveling and eating out aimed at supporting the COVID-hit tourism industry.
* However, major non-manufacturers projected their sentiment would slip slightly to -6 in March, with retailers, construction firms and electric and gas utilities forecasting worse business ahead.
* The improvement in sentiment among smaller businesses was also significant. The index for small and medium manufacturers surged to -27 in the latest survey from -44 three months earlier. The index for their non-manufacturing counterparts rose to -12 from -22.
* Smaller manufacturers expect their confidence up at -26 in March, led by non-ferrous metal firms and production machinery makers, but eight of the 18 categories in this sector saw worse sentiment in three months. Smaller non-manufacturers expect their sentiment index to slip back to -20 as small hotels and eating and drinking places as well as contractors and real-estate firms were particularly cautious.
* The Tankan showed that major firms downgraded their capital investment plans to a combined decrease of 1.2% in the current 2020 fiscal year ending in March 2021 over the previous fiscal year, down from a rise of 1.4% projected three months earlier. This was much weaker than the median economist forecast of a 0.1% drop (20 forecasts ranged from -1.7% to +1.6% in a Nikkei poll).
* For their part, smaller businesses expect their capex plans for fiscal 2020 to fall a combined 13.9% from fiscal 2019, which was an upward revision from the 16.1% decrease planned in September. Small businesses tend to revise up their plans later in the fiscal year.
* The average dollar/yen exchange rate assumed by all firms in all industries for fiscal 2020 was Y106.79, compared with Y107.34 in the September poll. Companies assumed the euro/yen forex rate to average at Y121.04 vs. Y120.42 in September.
* 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.
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Contact this reporter: max@macenews.com.
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