Japan: business confidence falls for the first time in 18 months
Published 2 July 2014
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0.1 Detail
The Bank of Japan’s (BOJ) quarterly Tankan survey released on 1 July shows that business confidence of large manufacturers and large non-manufacturers fell from 17 to 12 and from 24 to 19, respectively. This is the first fall in 18 months and follows the VAT rise in April. The automobile and non-ferrous metals led the fall for manufacturers, while the retail and utility sectors did so in non-manufacturing.
Firms expect this slowdown in economic growth to be short-lived. Looking ahead 3 months, business confidence for large manufacturers is expected to improve from 12 to 15 and unchanged at 19 for large non-manufacturers’ is to be. Given the steady near-term business outlook, the survey shows that large firms upgraded their FY2014 capital investment plans. In March 2014, capital investment was projected to increase by 0.1% - the June survey shows this increasing to 7.4%. This is the fastest rate of projected annual growth in 7 years as this time of year.
However, firms continue to expect squeezed profit margins, with higher input prices and difficulty raising prices. Consequently, large firms expect their sales to increase 1.8% in FY2014 but their net profits to decline slightly by 0.3% (though this is an improvement on March when they expected a 2.1% decrease).
SMEs manufacturers showed a similar pattern to large firms (worse but expected to improve) and while they just remained positive overall, their confidence levels are much lower than large firms.
0.2 Comment
The BOJ Tankan confirmed that business confidence has deteriorated as demand has fallen, following the VAT increase in April. The fall is within market expectations which have concentrated more on the higher capital investment intentions. This would be a welcome sign as it suggests that corporate cash piles may start being used, which would help underpin economic activity going forward. However, the survey also shows that companies continue to face strong pressure on margins and that SMEs are a lot less confident in the economy’s future than large firms.
0.3 Disclaimer
The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.