Japan manufacturers less confident as dark clouds hang over China, global growth

TOKYO – Business morale at big Japanese manufacturers slid in January for the first time in four months and was expected to remain subdued, the Reuters Tankan poll showed, underscoring concerns about weak demand from China and elsewhere.

The monthly poll, which tracks the Bank of Japan’s (BOJ) key Tankan quarterly survey, found the service-sector mood improving, but it was seen deteriorating slightly over the coming three months, reflecting fragile domestic consumption.

The poll results may dash hopes that the Japanese economy, the world’s third-largest, could count on external demand to offset weakness in households amid rising living costs underpinned by stubborn weakness in the yen currency.

In the Reuters poll of about 500 large- and mid-sized companies, in which 240 firms responded on condition of anonymity, many voiced concerns about uncertainty overseas in countries such as China, Japan’s largest trade partner.

“The Chinese market remains unstable and we cannot foresee a bright future there. As a result (our) domestic client is taking a wait-to-see stance,” a paper- and pulp-making company wrote in the survey on condition of anonymity.

A machinery maker manager cited cooling US-China relations, China’s slowdown, the prolonged war in Ukraine and the renewed conflict between Israel and Hamas as sources of concern on the outlook, making clients wary of raising capital spending.

Another machinery maker wrote: “Inflationary trend globally saps appetite for capital expenditure and China’s stagnant economy aggravates our sales of production materials and durable goods materials.”

There is no shortage of worries.

A precision machinery maker voiced concerns about the impact of earthquakes that struck on New Year’s Day in the Noto Peninsula, north-west of Tokyo, on its factories there.

The sentiment index for manufacturers stood at +6, down six points from the previous month, dragged down by exporting sectors such as cars and electronics, according to the survey conducted between Dec 22 and Jan 12.

The index is expected to stay flat over the three months ahead to April.

The service-sector index grew to +29 in January from +26 in the previous month, led by retailers, information/communications and transport/utilities. The index will edge down in April.

The BOJ’s Tankan showed in December 2023 that sentiment at big Japanese manufacturers hit a near two-year high in the three months to December, and that for non-manufacturers jumped to levels not seen since 1991, signalling that the conditions needed to unwind monetary stimulus were falling into place.

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