Japanese business worsened for first time in two years: central bank survey

Vastavam web: Japanese business sentiment worsened for the first time in two years in the three months to March, a closely watched central bank survey showed on Monday, as rising raw material and labour costs weigh on an otherwise steady economic recovery.A strong yen and simmering fears of a trade war, triggered by U.S. President Donald Trump’s move to impose tariffs on Chinese goods, could further undermine corporate morale if threats of retaliation escalate, analysts say.

“Yen gains since late January has eroded manufacturers’ sentiment but solid global economic fundamentals helped offset the pain. Overall, you can say that business confidence held firm,” said Yuichiro Nagai, an economist at Barclays Securities.An index measuring big manufacturers’ confidence fell by 2 points to plus 24 in March, the Bank of Japan’s quarterly “tankan” survey showed, roughly matching a median market forecast of plus 25.

Non-manufacturers’ sentiment worsened by 2 points to plus 23 against a median forecast of plus 24, deteriorating for the first time in six quarters.Big manufacturers expect the dollar to move around 109.66 yen on average during the year that began in April, well above current levels around 106 yen.This means that if yen gains persist, manufacturers may be forced to slash their optimistic profit forecasts – a worrying sign for Prime Minister Shinzo Abe’s efforts to spur growth with reflationist policies.A tankan index measuring capacity constraints showed that companies saw the job market at its tightest since 1991.

Some firms in the construction, restaurant and hotel industries complained that labour shortages were taking a toll on their businesses, a BOJ official briefing reporters on the data said.Among manufacturers, basic materials firms such as those selling steel, nonferrous metals and textile goods saw sentiment hurt by rising raw material costs, the official said.

Still, big firms plan to raise their capital spending by 2.3 percent in the current financial year from April, versus the median estimate for a 0.6 percent gain, the tankan showed.Japanese policymakers fret that a strong yen and trade frictions could deal a heavy blow to the export-reliant economy, which has benefited from solid global demand.

Japan’s economy has grown for eight straight quarters, its longest continuous expansion since the 1980s bubble economy, moving Abe’s revival plan a step closer to vanquishing decades of stagnation.But slow wage growth and companies’ reluctance to raise prices have kept inflation well below the Bank of Japan’s elusive 2 percent target.