Japan’s business mood sours after China lockdown, rising costs

Cranes of an industrial port are seen in front of Mount Fuji in Tokyo, Japan, February 17, 2022. REUTERS/Kim Kyung-Hoon

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  • Confidence index of major manufacturers at +9 against f’cast +13
  • Index of large non-manufacturers at +13 vs f’cast +14
  • Large companies’ investment plans are expected to grow 18.6% annually in fiscal 2022
  • Tokyo’s core consumer prices rise at fastest pace in 7 years
  • Tankan among data to be reviewed at BOJ meeting on July 20-21

TOKYO, July 1 (Reuters) – Sentiment among major Japanese manufacturers deteriorated for a second straight quarter in the three months to June, a central bank survey showed on Friday, hit by rising costs of inputs and supply disruptions caused by the strict COVID-19 in China. 19 blocks.

But confidence among large non-manufacturers improved in the quarter, the quarterly ‘tankan’ survey showed, suggesting service-sector companies are shaking the brakes off the pandemic as the government lifts curbs on the pandemic. ‘activity.

Businesses expect to increase capital spending and are steadily passing the costs on to consumers, the tankan showed, suggesting the economy remains on track for a moderate recovery.

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Analysts, however, warn of a bleak outlook as growing fears of an economic slowdown in the United States and steady price hikes for basic necessities weigh on exports and domestic consumption.

“Overall, the tankan numbers aren’t too bad. The strong capital spending plan is a surprise and shows companies’ appetite for spending remains strong,” said Yoshiki Shinke, chief economist. at the Daiichi Life Research Institute.

“But manufacturers expect to see profits fall, which could affect their spending plans going forward. Rising input costs and the prospect of slowing US growth are also clouding the outlook.”

A sign of growing inflationary pressure, separate data showed core consumer prices in Japan’s capital Tokyo – a leading indicator of national trends – rose 2.1% in June from a year earlier. to mark the fastest rate of increase in seven years.

The main tankan index measuring the mood of major manufacturers fell from plus 14 in March to plus 9 in June, hitting the lowest level since March 2021. It compares with a median market forecast of plus 13.

The large non-manufacturing confidence index improved to plus 13 in June from plus 9 in March, just below a median market forecast of plus 14.

In a sign that more companies have been able to pass on rising costs to consumers, an index measuring producer prices hit the highest level since 1980 for large manufacturers and the highest since 1990 for large non-manufacturers, showed the tankan.

Large companies expect to increase capital spending by 18.6% in the current fiscal year ending March 2023, well above the median market forecast for an 8.9% gain.

Japan’s economy likely stagnated in the current quarter as China’s strict COVID lockdowns, soaring raw material costs and supply chain disruptions hurt factory output. Thursday’s data showed output fell the most in two years in May. Read more

Policymakers hope consumption will rebound from the drag of the pandemic and offset weak manufacturing activity. But the recent fall in the yen is driving up the prices of imported fuels and foodstuffs, adding pain to households.

The tankan showed that companies’ inflation expectations were rising, a sign they expected recent upward price pressure to persist, contrary to BOJ Governor Haruhiko Kuroda’s view that current cost inflation will prove temporary.

Businesses expect consumer prices to rise 2.4% a year from now, the June tankan showed, higher than the 1.8% rise forecast three months ago. Three years from now, companies expect consumer prices to rise 2% from now, up from 1.6% in the March survey.

This compares to the BOJ’s current forecast, made in April, that core consumer inflation will hit 1.9% in the current fiscal year ending March 2023 before slowing to 1.1%. the next year.

Many analysts expect the BOJ to revise its core consumer inflation forecast for this fiscal year upwards above 2% when it produces new quarterly projections at an upcoming meeting on 20 and July 21.

However, some analysts doubt that inflation will continue to accelerate at the current rate.

“I expect inflation to stay at the current level until the end of the year but peak after that,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Other major economies are tightening monetary policy, which could trigger a global recession. If that happens, the BOJ will lose a chance to normalize policy and may instead be forced to ease again.”

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Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Daniel Leussink and Kantaro Komiya; Editing by Sam Holmes and Richard Pullin

Our standards: The Thomson Reuters Trust Principles.

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