Business Confidence Drops in Japan

By Kantaro Komiya

TOKYO (Reuters) – Business confidence among major Japanese manufacturers fell to a seven-month low in September. A Reuters monthly poll indicated concerns over soft Chinese demand across various sectors.

The sentiment among non-manufacturers also declined for the third consecutive month, hitting a one-year low. This shift reflects a negative outlook following the Bank of Japan’s (BOJ) interest rate hike in July.

According to the Reuters Tankan survey, which aligns closely with the BOJ’s quarterly business assessment, the sentiment index for manufacturers dropped to plus 4 in September, down from plus 10 in August, marking the lowest level since February’s minus 1.

Manufacturers anticipate a further decline in confidence to plus 3 over the next three months. One machinery manager noted, “Our clients’ investments were falling behind schedule due to the weak Chinese economy.”

Various sectors, including steel, textiles, and electronics, expressed worries over weak Chinese demand, the global slowdown in electric vehicles, and inflation of raw materials.

China’s consumer inflation rose in August, attributed to increased food costs from weather disruptions rather than a recovery in domestic consumption, while producer price deflation worsened.

On a positive note, some respondents mentioned that the semiconductor market is showing signs of recovery, particularly in high-end products, offering a slight hope amidst the bleak manufacturing outlook.

The Reuters Tankan service-sector index also fell for the third month, landing at plus 23 in September, down from plus 24 in August, and the lowest since last year. Service providers, especially retailers, reported declining sales due to inflation and adverse weather conditions.

Despite current struggles, service-sector firms expect a bounce back to plus 27 in December, fueled by strong foreign tourist spending in a context of soft domestic demand.

The Reuters Tankan indexes are derived by subtracting the percentage of pessimistic responses from optimistic ones, where a positive figure indicates more optimists than pessimists. This recent poll surveyed 506 non-financial major companies, gathering responses from 245 firms on an anonymous basis between August 28 and September 6.