Japan - mixed results for business confidence
Published 18 December 2014
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This article is no longer current. Please refer to Overseas Business Risk – Japan
Summary
Japan’s quarterly Tankan business sentiment survey shows mixed results. Most businesses report higher business sentiment than 3 months ago apart from large manufacturing firms and small non-manufacturing firms. However, all forecast lower confidence ahead.
Detail
The Bank of Japan’s (BOJ) quarterly Tankan survey of business sentiment shows that the large manufacturers’ current sentiment Diffusion Index (DI) is 12. This is a slight fall from 13 in the previous survey (September 14) but largely in line with the market consensus. However, large non-manufacturing companies view current conditions more optimistically than expected. Their current sentiment DI of 16 is 3 points higher than 3 months ago and 4 points above the consensus estimate. The manufacturers’ sentiment survey is generally regarded as more important as it includes exporters, which are considered a key driver for Japanese economic growth. However, any positive DI figure means that more firms remain positive than negative. Overall, the DI index for the approximately 10,500 firms surveyed is 5 (+1) but the data shows that small firms in particular continue to with a DI near zero confirming that they yet to feel the benefits of Abenonomics.
Outlook expected to worsen
All sectors are forecasting business sentiment to worsen between now and March 2015. This is particularly marked with smaller businesses that are mainly domestically orientated and facing higher input costs due to the weaker yen.
FY2014 private capital investment plans upgraded
The survey also shows that large corporations now plan to invest 8.9% (was 8.6% in the previous survey) more in FY2014 than FY2013. Of this, large manufacturers expect to increase their annual investment for FY2014 by 11.4% (was 13.4%) and non-manufacturing firms from 6.3% to 7.6% compared to the previous year.
Manufacturers expect a weak Yen but not this weak
Large manufacturers are currently assuming an average FY2014 Yen/USD exchange rate of 103.36 Yen (was 100.73) as the basis for their forecasts. This is stronger the current rate of 118.7 which means the profitability of exporters should be higher if current exchange rate levels are sustained.
Labour shortages in most enterprises
The survey confirms that large manufacturing firms are reporting labour shortages. Other parts of the economy including SME’s and non manufacturing firms have previously reported the same and the survey shows labour shortages are expected to worsen for these businesses.
Comment
The overall Tankan survey shows the economy continuing to recover but poor Q3 GDP and the news that Japan is back in a technical recession will have influenced the views of businesses who responded (the survey was open between 12 November-12 December) and their views of the future. A further increase in private sector plans for higher domestic investment will be welcome. But the survey does illustrate the challenges faced by PM Abe and the Japanese Government following the ruling LDP’s strong showing in elections last weekend. There is an increasing gulf between small businesses who have yet to feel any economic recovery and who are battling with higher input costs due to the weaker Yen, and larger firms who benefit from exchange rate weakness and exports/overseas earnings. The shortage of labour in key industries must give policy makers some hope that real wages will start to rise shortly. Next spring’s wage round will be a key moment.
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.