TOKYO, Oct 3 (BNA): The mood of Japanese manufacturers worsened in the three months to September, and corporate inflation expectations hit a record high, a central bank survey showed, as rising material costs stubbornly cast a spell on the outlook for the fragile economy.
The Bank of Japan’s Tankan survey showed that companies’ capital spending plans for the current fiscal year have remained strong, thanks in part to a weak yen boosting exporters.
But fears of a global economic slowdown are casting a shadow over the outlook for the export-reliant economy, which has just emerged from the coronavirus pandemic.
Sentiment in major manufacturers was surprisingly weak as slowing global growth affected the materials sector through declines in commodity prices,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“If the global economy slows further, other sectors may also see a deterioration in sentiment,” he said.
The Tankan survey showed that the leading index for major manufacturers worsened to plus 8 in September from plus 9 in June, which is below the average market expectation of an addition of 11, and deteriorated for the third consecutive quarter.
The index of non-manufacturers settled at plus 14 in September, up slightly from plus 13 in June to indicate an improvement for the second consecutive quarter. It was compared to average market expectations to add to 13.
The survey showed that major manufacturers expected business conditions to improve three months in advance, while the morale of non-manufacturers was worsening.
In a glimmer of hope, major companies expect capital spending to increase by 21.5% in the current fiscal year ending March 2023 after a 2.3% decline in the previous year, Tankan said.
The survey also showed that companies expect inflation to remain close to the Bank of Japan’s 2% target for years to come, underscoring mounting inflationary pressure that could cast doubt on the bank’s pledge to maintain ultra-low interest rates.
Tankan showed that companies expect inflation to reach 2.6% annually from now and 2.1% in the next three years. They expect an inflation rate of 2.0% for the next five years, the highest level since comparable data became available in 2014.
Japan’s economy expanded 3.5% annually in the second quarter as the lifting of COVID-19 restrictions boosted consumption. But many analysts expect growth to slow in the third quarter, as slowing global demand and higher raw material prices weigh on exports and consumption.
MI