Search

Japan business morale sinks to five-year low

Reuters - Tuesday, July 1

By Hideyuki Sano

TOKYO, July 1 - Confidence among big Japanese manufacturers sank to a five-year low in June and they responded to record commodity prices and slowing global growth with the tightest capital spending budgets since 2002.

Investors had been expecting an even darker mood and seized on signs of a slight recovery in the construction sector as an opportunity buy shares, sell bonds and increase bets on a rate rise by the Bank of Japan.

That did little to change the overall picture. Companies were expecting profits to fall for the first time in seven years, the central bank's quarterly tankan corporate survey showed.

The mood among automakers, grappling with fallout from the credit crisis in the United States, darkened more quickly than at any time in a decade. The measure of input costs for non-manufacturers were the highest since comparable records began.

"Sentiment in the construction-related sector bottomed out, helping to reduce the fall in the headline index," said Junko Nishioka, a senior economist at ABN Amro Securities.

"But that doesn't change the picture that the overall trend is down."

The headline index for big manufacturers' sentiment dropped to plus 5 from plus 11 in the previous survey in March. The median forecast of analysts polled by Reuters was plus 3. [JPBCLG=ECI]

For a graph of the index click on

https://customers.reuters.com/d/graphics/JP_BOJTK0708.gif

The index has fallen for three straight quarters and was the lowest since September 2003, when it was plus 1.

The index for September was seen at plus 4, showing firms expect conditions to worsen over the next three months.

Still, investors had been expecting worse after months of market turmoil and growing evidence that the U.S. credit crunch and housing market meltdown were sapping global economic growth.

Tokyo shares <.N225> rose about 0.3 percent in the morning, though they ended slightly lower. Japanese government bond prices fell. Swap contracts were pricing in around a 33 percent chance of a rate hike in the second half of this year, compared to about 25 percent late on Monday. <FINEWS> [JP/] [.T]

"The key thing shown in the tankan is that the Japanese economy is slowing but not at as rapid a pace as expected," said Takahide Kiuchi, chief economist at Nomura Securities.

"The pace of worsening in business sentiment is moderating and it looks unlikely that the economy is heading towards a deep adjustment."

CONSTRUCTION SECTOR

The sentiment index drew support from an improving mood in construction sector companies such as makers of processed metal and lumber products.

The Japanese construction sector is gradually recovering from a sudden plunge in housing investments after the government introduced tighter building rules in June last year.

Most companies began to grow cautious about capital spending, a key driver of the Japanese economy, with the economy in its longest postwar expansion.

Big firms plan to increase capital expenditure by 2.4 percent this business year, the tightest spending plan for a June survey in six years.

That still beat a median forecast for a 2.0 percent rise and was close to the average capital expenditure numbers for June surveys in the past 24 years.

Companies are also expecting a rise in sales in the year to March but rising costs have forced them to slash their profit outlook.

CAN'T PASS ON COSTS

The input price indexes for both big and small non-manufacturers hit their highest since comparable data became available in May 1983.

More companies are paying more to suppliers at a time when European and U.S. export markets are slowing and Japanese consumers are still skittish after a decade of deflation.

Big companies expect recurring profits to fall 7.0 percent in the financial year to next March, compared to their forecast of 0.3 percent rise three months ago.

The auto sector sentiment index fell to plus 15 from plus 33, the sharpest fall in a decade.

The inability of companies to pass on costs to Japanese consumers is one reason why the central bank is more worried about slowing growth than the rise of inflation to a 10-year high.

Japan has relatively little risk of record oil and commodity prices rippling through the economy and spurring demand for higher wages.

Separately, government data showed Japanese wage earners' total cash earnings rose 0.2 percent in May from a year earlier but overtime pay, a barometer of the strength of corporate activity, fell 1.0 percent, its first fall in five months. [nID:TKG003157] (Additional reporting by Tetsushi Kajimoto, Yuzo Saeki and Leika Kihara; Editing by Rodney Joyce, Dayan Candappa and Michael Watson)

Recommend this article

Average (0 votes)
0 stars
Sign in to recommend this article »
Most Recommended Stories »

Related Articles: Business