Large manufacturers’ sentiment worsens for 4th straight quarter

Jiji Press

9:00 JST, December 15, 2022

TOKYO (Jiji Press) — Business sentiment among large manufacturers in Japan worsened for the fourth straight quarter due mainly to surging materials costs, the Bank of Japan’s “tankan” quarterly survey for December showed Wednesday.

The headline diffusion index for large manufacturers’ current business conditions fell to plus 7 from plus 8 in the previous September survey, the central bank said, still higher than the median forecast for plus 6 in a Jiji Press survey of economic research institutes.

Manufacturers’ sentiment was dampened by higher import costs for raw materials due to soaring commodity prices and the yen’s weakness. Chemical companies and makers of oil and coal products took a big hit. Automakers’ sentiment improved slightly as semiconductor shortages eased.

The current business conditions index for large nonmanufacturers rose to plus 19 from plus 14, improving for the third consecutive quarter, the BOJ said.

Among large nonmanufacturers, sentiment improved in the hotel and restaurant and retail sectors in particular, thanks to the relaxing of COVID-19-linked border controls and the government’s domestic tourism promotion campaign.

The index represents the percentage of companies seeing good business conditions minus that of those feeling the opposite. The latest survey was conducted between Nov. 10 and Tuesday.

The BOJ said the business conditions index for small manufacturers rose to minus 2 from minus 4, its first improvement in four quarters, while that for small nonmanufacturers gained to plus 6 from plus 2, rising for three quarters in a row.

Concerns over slowing economies in China and the United States will weigh on Japanese business sentiment in the months to come.

Large manufacturers’ index is expected to drop 1 point to plus 6 toward March, while the index for large nonmanufacturers is likely to fall 8 points to plus 11, according to the tankan report.

Japanese companies, regardless of size and sector, assume a foreign exchange rate of ¥130.75 to the dollar for fiscal 2022, which ends next March, compared with ¥125.71 in the September tankan.

Capital expenditures by major companies are forecast to grow 19.2% in fiscal 2022 from the previous year.

Large manufacturers anticipate an 8.2% rise in fiscal 2022 ordinary profit from the previous year. They project a 24.1% jump for the first half but an 8.2% decline for the second half.

The index for input price changes, or the percentage of firms seeing higher procurement costs minus that of those feeling otherwise, rose 1 point to plus 66 for large manufacturers, the highest level since May 1980 in the aftermath of the second oil crisis.

Major manufacturers’ index for output price changes climbed 5 points to plus 41, the highest level since the survey began in 1974.