Trade War Weighs On Japan Business Sentiment In Q4, Its Worst In 7 Years

According to a survey by Japan’s central bank, the business sentiment of the big manufacturers of Japan have touched a seven year low during the fourth quarter of the current year as the slowing demand for Japanese products for the export dependent economy was weighed down by U.S.-China trade war and weak global demand.

The Bank of Japan’s “tankan” quarterly survey showed that in the next three months, the expectations of the companies are that the current global conditions would remain the same or would get worse. This signals that broader sectors of the economy could be affected of the trade conflicts continued.

The survey report however also brought out some positive points.  For example, the sales tax hike in the country in October has apparently been weathered by the non-manufacturing companies as shown by the strength of their business sentiment as the companies continued to hold up robust capital expenditure plans. This also reinforced the expectations of the market that the a decision on expanding stimulus would be held off by the BOJ when it meets next week for a review of the economy.

“The tankan suggests that the economy is slowing rather than collapsing so the BOJ is unlikely to cut interest rates at next week’s meeting,” said Marcel Thieliant, senior Japan economist at Capital Economics.

In December, there was a drop in the headline index for big manufacturers’ sentiment at 0 from the plus 5 in September and the tankan showed on Friday that it was worse than a median market forecast of plus 2.

This is the fourth straight quarter with declining business sentiments and the lowest in any month since March of 2013 which was month prior to the deployment of his “bazooka” monetary stimulus to pull Japan out of deflation by BOJ Governor Haruhiko Kuroda.

For the first time in more than three years, the index measuring big automakers’ sentiment turned negative which highlighted the severe impact of the trade war between the US and China,

A BOJ official told reporters, prior to the 2020 Tokyo Olympic Games, there will be a peaking of demand, believes some steel and cement makers.

“The weakness in automakers’ sentiment is noteworthy. The global economy is taking longer to recover and that uncertainty is affecting Japanese companies,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.

In September, the index for big non-manufacturers dropped to plus 20 from plus 21 because of the hike in sales tax hike in October which weighed on Japan’s service sector. But the reading exceeded a Refinitiv estimate of plus 17.

“Domestic demand wasn’t hurt much by the sales tax hike so far. Public works projects to be earmarked under the government’s spending package will underpin growth,” said Mari Iwashita, chief market economist at Daiwa Securities.

The survey also showed that in the current business year ending in March 2020, increase of capital expenditure by 6.8 per cent is being planned by big firms. That number is slightly more than what the companies had been planing three months ago.

“Domestic demand may slow temporarily … though in the long-term, it will stay resilient,” BOJ Deputy Governor Masayoshi Amamiya said on Thursday.

(Adapted from Asia.Nikkei.com)



Categories: Creativity, Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized

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