TOKYO: Business confidence among major Japanese manufacturers and service sector firms has declined this April, influenced by heightened cost-of-living pressures and economic uncertainties in key markets such as China, according to a Reuters monthly poll. The weakening yen, reaching levels not seen since 1990, has exacerbated the cost of imports, adversely impacting household spending, as detailed in the Reuters Tankan survey. Although the depreciation has increased the value of exports, the volume of shipments has not seen corresponding gains. The survey revealed that the sentiment index for manufacturers dropped to plus 9 from 10 the previous month, with notable downturns in sectors like chemicals and food processing.
Similarly, the services sector index fell to plus 25 from plus 32, despite some retail gains. Conducted between April 3-12, during a period when the yen fell to a 34-year low of over 153 yen to the dollar, the survey captured the concerns of 235 of the 497 large non-financial Japanese firms polled. Market volatility led to official warnings of potential interventions against destabilizing currency movements. Despite the weak yen boosting sales, a manager from a chemical firm noted, “Our sales appear to be boosted due to the impact of a weak yen, but there’s no sign of recovery in terms of volume.” Firms also expressed concerns over domestic demand, which has been affected by consumer resistance to price increases for daily essentials. External economic factors, such as delays in China’s economic recovery and uncertainties in US-China economic relations, were also cited as significant concerns.
The Bank of Japan’s (BOJ) last quarterly tankan survey contrasted the optimistic sentiment in the services sector, boosted by inbound tourism and profit rises from price increases, with the declining sentiment among major manufacturers. This was the first decline in four quarters. Recent data on Japan’s core machinery orders indicated a sharp rebound, signaling a potential uplift in domestic demand. However, the overall economic indicators suggest a tepid recovery outlook. Following a pivotal decision to end negative interest rates last month, the BOJ has maintained a cautious approach to further monetary tightening. The Reuters Tankan indexes, which measure business sentiment, calculate optimism in the market by subtracting the proportion of pessimistic responses from the optimistic ones, with a positive figure indicating a prevalence of optimism.
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