Japan big manufacturers’ mood hits near three-year low: BOJ tankan By Reuters

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© Reuters. Smoke rises from factories at factories at the Keihin industrial zone in Kawasaki

By Leika Kihara

TOKYO (Reuters) – Japanese big manufacturers’ business confidence worsened to a nearly three-year low in the quarter to June, a closely watched central bank survey showed, in yet another sign of the growing economic toll exerted by slowing global demand and the bitter U.S.-China trade war.

Big non-manufacturers’ business sentiment improved slightly from three months ago, the Bank of Japan’s quarterly “tankan” survey showed on Monday, suggesting that solid domestic demand was partially offsetting weakness in overseas shipments.

Roughly 70% of the companies surveyed gave their replies on June 11, according to the BOJ, which meant the survey did not reflect the impact of an agreement reached on Saturday between the United States and China to restart trade talks.

“Today’s survey has not factored in the resumption of the U.S.-China trade talks, so big-manufacturers’ outlook sentiment could have been better if it had been priced in,” said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.

“Worries over the U.S.-China trade conflict could ease ahead,” he said, adding that the tankan does not increase the likelihood of imminent monetary easing measures by the BOJ.

The headline index for big manufacturers’ sentiment stood at plus 7 in June, worsening from plus 12 in March and falling short of a median market forecast of plus 9, the tankan showed.

The index for big non-manufacturers stood at plus 23 in June against plus 21 in March. That compared with a median market forecast of plus 20.

The data underscores the divergence between exporters, who are feeling the pinch from the trade conflict, and service-sector companies still benefiting from the resilience in private consumption.

The survey also showed big firms planning to raise their capital expenditure by 7.4% in the financial year to March 2020, versus economists’ median estimate of a 8.9% increase.

Japan’s economy expanded by an annualized 2.1% in the first quarter but many analysts predict growth to slow in coming months as the U.S.-China tariff row hurts trade, business sentiment and corporate profits. A scheduled sales tax hike in October may also curb consumption, they warn.

Any downturn in business spending could cast doubt on the BOJ’s argument a sustained economic recovery will gradually encourage firms to boost prices and wages, helping inflation accelerate.

The tankan’s sentiment indexes are derived by subtracting the number of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists.

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