Big Japanese Manufacturers Remain Gloomy as External Demand Ebbs

Reuters

11:44 JST, April 19, 2023

TOKYO (Reuters) – Big Japanese manufacturers remained pessimistic in April for a fourth straight month as jitters over Western banks added to slowing global growth, the monthly Reuters Tankan survey showed on Wednesday, dimming prospects for an export-led recovery.

However, it also showed the service sector mood improved for a second straight month to a four-month high, signaling a post-COVID economic recovery led by inbound tourism, which has boosted restaurants and retailers.

“The survey confirmed the economy is on track for a post-coronavirus recovery backed by service-sector firms, although manufacturers are affected by a slowdown in global demand,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.

The Reuters Tankan, which closely tracks the Bank of Japan’s (BOA) quarterly key tankan survey, canvassed 493 big non-financial firms. About 240 firms responded during the April 5-14 period on condition of anonymity.

The survey results chimed with the BOJ tankan published on April 3, which showed the big manufacturers sentiment index worsened for a fifth consecutive quarter, hurt by elevated costs of raw and other materials, energy and mixed feed, while the service sector mood slightly improved after easing COVID curbs.

“Our clients are taking a wait-to-see stance due to anxiety over the financial sector in the United States and Europe and a delay in recovery in Chinese demand,” a manager of a paper/pulp company wrote in the survey.

On the other hand, service-sector firms sounded more upbeat on the current business situation.

“Private consumption has come back to life as a reaction against a pullback in demand caused by the coronavirus pandemic,” a manager at a retailer wrote in the survey.

The sentiment index for big manufacturers in the Reuters Tankan survey stood at minus 3, unchanged from the previous month and posting a fourth straight month of negative readings, according to the survey.

It was the longest such sequence since an 18-month run of negative sentiment through the start of 2021 in the wake of the COVID outbreak.

The Reuters Tankan manufacturers index is expected to rebound to plus 7 over the next three months.

The large service-sector firms’ index edged up to plus 24 in April from plus 21 seen in the previous month, hitting the highest level since December. The index is expected to fall to plus 19 in July.

BOJ Governor Kazuo Ueda has vowed to continue monetary easing for the time being to support a fragile economy. The tankan surveys will be among indicators the central bank closely scrutinizes to gauge corporate strength when Ueda chairs his debut policy-setting meeting on April 27-28.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.

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