Japanese Manufacturers’ Sentiment Weighed by Global Risks
Business Morale Subdued, Services Sector Shows Improvement
Business morale among large Japanese manufacturers remained subdued in October, although there was a slight improvement in the services sector, according to the Reuters Tankan poll. The poll revealed that while global headwinds continue to impact the economy, upbeat domestic demand has helped to partially offset these challenges.
Global Headwinds Impacting Japanese Economy
The Japanese economy is facing several challenges due to global factors. The prospect of higher U.S. interest rates has weakened the Japanese yen, negatively affecting the country’s terms of trade. Additionally, concerns about a spike in oil prices are also weighing on sentiment.
Downside Risks Impact Confidence in Trade-Reliant Economy
The global economy’s downside risks have sapped confidence in Japan’s trade-reliant economy. Despite gradual recovery from the pandemic, confidence has been affected by uncertainties arising from global economic conditions. However, the return of tourists from China and other countries has contributed positively to the recovery process.
Flat Mood for Manufacturers, Slight Improvement in Services Sector
The Reuters poll, which tracks the closely watched Bank of Japan’s tankan quarterly survey, reported a flat mood among manufacturers with a +4 index point in October. However, it is expected to slightly improve over the next three months. On the other hand, the service-sector index rose to +24, showing a slight improvement from the previous month.
Fragility of Corporate Morale
Corporate morale remains fragile as uncertainties persist. A manager from an industrial ceramic maker highlighted the divide between those benefiting from car production recovery and those suffering from China’s economic slowdown. The manager expressed concerns about the high uncertainty surrounding the outlook.
Rising Costs and Weak Yen Impacting Business
In the Reuters poll of 502 large- and mid-sized companies, many respondents complained about the rising cost of doing business. Surging raw materials prices, aggravated by a weak yen, have made it challenging for companies to maintain profitability.
Improved Business Sentiment in Third Quarter
The Bank of Japan’s tankan survey, released on October 2, revealed an improvement in Japan’s business sentiment during the third quarter. This suggests that conditions for a durable economic revival are falling into place, despite concerns about the global economic slowdown.
Reuters Tankan Indexes
The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A positive reading indicates that optimists outnumber pessimists.
