Japanese Manufacturers' Confidence Declines in November

TOKYO (Reuters) – Japanese manufacturers expressed lower confidence regarding business conditions in November compared to October, based on a Reuters monthly poll published Wednesday. This decline is attributed to China’s economic slowdown and persistent inflation, which has negatively affected sentiment.

Confidence in the service sector also waned for the fifth consecutive month, hitting its lowest level since February 2023, due to rising costs and a labor shortage. Both manufacturers and non-manufacturers mentioned a particularly volatile foreign exchange market as an area of concern.

The Reuters Tankan poll, which aligns closely with the Bank of Japan's quarterly business survey, showed that the manufacturer sentiment index fell to +5 from +7 in October.

A ceramics firm manager indicated worries about Japanese automakers facing challenges in the Chinese market, which is impacting the auto parts industry, while the environment-related products sector remains sluggish due to China’s downturn. Last week, the International Monetary Fund highlighted risks to Asia's economy, particularly from a lingering debt crisis within China’s property sector, which is affecting the overall economic climate. Japan's exports to China saw a decline in September.

The poll surveyed 505 major non-financial companies from October 23 to November 1, receiving 240 anonymous responses, many of which noted concerns over rising costs. A non-ferrous metal firm manager remarked, "Although there is demand, material prices are gradually rising, putting pressure on profit.” Some respondents indicated clients postponing investment decisions pending the outcome of the U.S. presidential election.

Projections indicate that manufacturers expect slight improvement in business confidence over the next three months, anticipating an index rise to +6.

The Reuters Tankan service-sector index dropped to +19 in November, down from +20 in October, marking the lowest level since February 2023. Factors contributing to the decline included weak demand from China, increasing costs, and extreme weather conditions. However, inbound tourism provided an element of positive sentiment.

Non-manufacturers are optimistic about improving business conditions reaching an index of +25 through February.

The Reuters Tankan indexes are derived from the difference between optimistic and pessimistic responses; a positive index indicates more optimists than pessimists.