Salem Radio Network News Sunday, September 25, 2022

Business

Japan business mood worsens for 2nd quarter amid rising costs

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) -Japanese big manufacturers’ business confidence soured for a second straight quarter in the three months to June, a central bank survey showed on Friday, hit by rising input costs and supply disruptions caused by China’s strict COVID-19 lockdowns.

But the mood among big non-manufacturers improved in April-June, the “tankan” quarterly survey showed, suggesting that service-sector firms are shaking off the drag from the pandemic as the government lifts curbs on activity.

The tankan’s headline index gauging big manufacturers’ mood slipped to plus 9 in June from plus 14 in March, hitting the lowest level since March 2021. It compared with a median market forecast of plus 13.

Rising raw material costs, supply constraints from Shanghai’s COVID-19 lockdown and auto production cuts were among reasons manufacturers cited as hurting their businesses, a BOJ official told reporters in a briefing.

“The manufacturing sector was a bit weaker than I had expected. The impact of the lockdown in Shanghai is bigger than expected,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

“The outlook is slowing down quite a bit, which is also shown in the manufacturing purchasing managers indexes so that suggests weakness in the manufacturing sector.”

Big non-manufacturers’ sentiment index improved to plus 13 in June from plus 9 in March, just below a median market forecast of plus 14.

Both big manufacturers and non-manufacturers expect business conditions to remain largely unchanged three months ahead, the tankan showed.

Big companies expect to increase capital expenditure by 18.6% in the current fiscal year ending in March 2023, compared with a median market forecast for an 8.9% gain.

Japan’s economy likely stalled in the current quarter as China’s strict COVID lockdowns, soaring raw material costs and supply chain disruptions hurt factory output. Data on Thursday showed output fell the most in two years in May.

Policymakers are hoping that consumption will rebound from the pandemic’s drag and offset the weakness in manufacturing activity. But the yen’s recent plunge is pushing up prices of imported fuel and food, adding pain for retailers and households.

The tankan showed companies’ inflation expectations heightening in a sign they expect the recent upward price pressure to persist, contrary to BOJ Governor Haruhiko Kuroda’s view that current cost-push inflation will prove temporary.

Companies expect consumer prices to rise 2.4% a year from now, the June tankan survey showed, higher than a 1.8% rise projected three months ago. Three years ahead, companies expect consumer prices to rise 2% from now, up from 1.6% in the March survey.

Separate data showed core consumer prices in Japan’s capital Tokyo, a leading indicator of nationwide trends, rose 2.1% in June from a year earlier to mark the fastest pace of increase in seven years.

The tankan will be among data scrutinised at the BOJ’s upcoming rate-setting meeting on July 20-21, when the board produces fresh quarterly growth and inflation projections.

(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Daniel Leussink; Editing by Sam Holmes and Richard Pullin)

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