Japan manufacturer sentiment drops to lowest level since 2013 amid trade war

Confidence among Japan's big manufacturers hasn't improved for almost two years, the longest streak since 2009. PHOTO: REUTERS

TOKYO (BLOOMBERG) - Sentiment among Japan's large manufacturers deteriorated to the lowest level in more than six years as continued trade friction between the US and China weighs on global growth.

Confidence among the country's biggest industrial companies fell to 5 from 7, according to the BOJ's quarterly Tankan survey released on Tuesday (Oct 1). A positive number means optimists still outnumber pessimists. Economists estimated the index would fall to 1.

Today's data will be a key part of a BOJ review later this month of whether overseas developments risk killing off Japanese inflation. Governor Haruhiko Kuroda said last month he has grown more inclined to add stimulus and many analysts expect the bank to move at its next meeting on Oct 30-31.

The BOJ is paying particular attention to how sagging sentiment affects business investment, a key prop for the economy given weakness in export demand.

Falling sentiment among manufacturers amplifies concerns over the growth outlook because a sales-tax hike implemented Tuesday is expected to sap domestic spending. Economists expect a 2.7 per cent GDP contraction in the fourth quarter as consumers pull back.

Confidence among Japan's big manufacturers hasn't improved for almost two years, the longest streak since 2009. Flagging optimism fits in with the latest forecast from the OECD, which last month said the world is headed for its slowest economic growth since the financial crisis.

Big companies outside the manufacturing sector continued to show greater optimism, though sentiment fell to 21 from 23 three months ago.

Not all the trade news is negative. Prime Minister Shinzo Abe last week signed an initial pact with President Donald Trump that removed the threat of US tariffs on Japanese cars at least for now - a positive development.

An index that measures large manufacturers' outlook registered 2, better than analysts' forecast of 0.

Big companies across industries plan to increase business investment by 6.6 per cent for the fiscal year ending in March 2020, compared with analysts' estimate of 7 per cent.

Large manufacturers expect the yen to be 108.68 per dollar this fiscal year. The currency was trading at 108.07 as of 8:57am in Tokyo.

Separate data showed the jobless rate remained unchanged at 2.2 per cent in August, compared with an estimate of 2.3 per cent.

The jobs-to-applicants ratio also stayed at 1.59 in August, meaning there were 159 jobs available for every 100 applicants.

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