TOKYO • Business confidence among Japan's big manufacturers worsened for a second straight quarter in the three months to June, a Bank Of Japan (BOJ) survey showed, as US trade protectionism clouds the outlook while oil and other materials drive up input costs.
The BOJ's quarterly "tankan" survey out yesterday showed the headline index for big manufacturers' sentiment at plus 21 last month, slipping from plus 24 three months ago and down for a second straight quarter.
It was the first time since Prime Minister Shinzo Abe swept to power in December 2012 that manufacturers' morale has soured for two straight quarters, raising worries that his reflationary "Abenomics" policies may be sputtering.
Yesterday's tankan news came amid a heated China-US trade dispute that roiled financial markets.
Industrial sectors such as cars and oil dragged down the overall mood, adding to concerns that United States President Donald Trump may target auto imports from Japan and other trading partners for protectionist tariffs after imposing stiff duties on steel and aluminium.
"Manufacturers' sentiment is levelling off while capital expenditure holds firm.
"I'm watching how fears of trade protectionism may affect corporate capex planning from now on," said senior economist Masaki Kuwahara of Nomura Securities.
IMPACT OF TRADE PROTECTIONISM
Manufacturers' sentiment is levelling off while capital expenditure holds firm. I'm watching how fears of trade protectionism may affect corporate capex planning from now on.
MR MASAKI KUWAHARA, senior economist at Nomura Securities.
The headline index undershot the median estimate of plus 22 in a Reuters poll of analysts, and is expected to stay flat over the next three months, it showed.
A private survey yesterday showed Japanese manufacturing activity grew at a slightly faster pace last month, but export orders fell more than initially reported, an unwelcome sign of the potential impact of a trade war between the US and major economies.
The central bank will scrutinise the tankan results at its rate review later this month, at which its nine-member board will conduct a quarterly audit of the long-term growth and price outlook, and analyse factors behind subdued inflation.
Japan's economy is expected to rebound in the second quarter from a contraction in the first quarter that ended the longest growth streak since the 1980s bubble economy.
Risks to the export-reliant economy abound, not least from US trade protectionism.
Policymakers and Japanese firms worry that trade friction and potential gains in the yen could undermine export-led growth.
The latest tankan showed big manufacturers set their expected US dollar/yen rate at 107.26 for this fiscal year, compared with 109.66 yen seen three months ago, underscoring corporate caution about renewed yen strength. The US dollar stood at around 111 yen yesterday.
Non-manufacturers' sentiment stood at plus 24 last month, slightly above a median forecast of plus 23, up one point from the previous quarter. It was seen worsening to 21 in September.