Big firms and non-manufacturers expect business to worsen in the next few months. (Reuters pic)
TOKYO: Japanese manufacturers’ mood soured in the final quarter of 2022 to its lowest point in nearly two years, a central bank survey shows, as cost pressures and the prospects of slowing global demand cloud the outlook for the world’s third-largest economy.
Service-sector sentiment improved for three straight quarters in the October-December period, according to the Bank of Japan’s closely watched Tankan survey, released on Wednesday, as the impact on consumption from the coronavirus pandemic faded.
Big manufacturers and non-manufacturers expect business conditions to worsen ahead, the survey says, reflecting rising raw material costs and fears of weakening global demand.
The mixed outcome highlights the challenge policymakers face in prodding companies to raise wages and compensate households for the rising cost of living – a factor the BOJ says is crucial for inflation to sustainably hit its 2% goal.
“Slowing growth in Japan’s major export markets such as China likely took a toll on manufacturers,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “Going forward, the slowdown in the global economy will drag on exports. Fears of the eighth wave of Covid-19 infections in Japan, as well as China’s slowdown, could also hurt consumption and inbound tourism.”
The Tankan’s headline index for big manufacturer sentiment fell to plus 7 in December from plus 8 in September, worsening for the fourth straight quarter and marking the lowest level since March 2021. The reading compares with a plus 6 median market forecast.
Rising raw material costs and narrowing margins hurt morale among chemical and petroleum goods producers. Sentiment improved among auto and food makers because supply constraints eased and progress was made in raising prices, according to the survey.
The big non-manufacturer confidence index rose to plus 19 from plus 14, beating market forecasts of plus 17 and hitting its highest level since December 2019, the survey shows.
Big firms expect to increase capital expenditure by 19.2% in the current fiscal year, which ends in March 2023, after a 2.3% decline in the previous year, it shows.
Core consumer prices rose 3.6% in November from a year earlier, the fastest pace in 40 years and exceeding the BOJ’s 2% target for a seventh straight month, as the yen’s slump inflated the cost of importing already expensive fuel and food.
The rising cost pressure took a toll on businesses and households, which was behind the economy’s unexpected contraction of an annualized 0.8% in the third quarter.
Analysts expect growth to rebound in the current quarter due to easing supply constraints and the lifting of Covid-19 border controls, though weakening global demand could cloud the outlook.
