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Japan Business Confidence Q3 2019

Japan: Business sentiment among big manufacturers sours to over six-year low in Q3

According to the Bank of Japan’s quarterly Tankan business survey, sentiment among large manufacturers in Q3 2019 declined to the lowest point since Q2 2013 as rising trade protectionism and subdued global growth take their toll on Japan’s all-important external sector. The closely watched business confidence index for large manufacturers declined from 7 in Q2 2019 to 5 in Q3, but still surpassed the 2 reading that market analysts had expected. The Tankan business survey is calculated by subtracting the number of respondents who say economic conditions are improving from those who say they are deteriorating. A positive reading means optimists outnumber pessimists.

The forward-looking indicator for the next three months fared even worse, with the index falling from 7 in Q2 to 2 in Q3, indicating that big manufacturers are less optimistic about business conditions.

The survey also showed that large firms expect capital spending to increase 6.6% in the financial year to March 2020, below the 7.0% that had been expected by market analysts.

Large manufacturers forecast that the Japanese yen will average 108.5 JPY per USD in the second half of the 2019 fiscal year, which ends in March 2020.

Lastly, confidence in non-manufacturing firms also declined in Q3, suggesting that weakness in the manufacturing sector is slowly feeding into the broader economy. The index fell from 23 in Q2 to 21 in Q3.

Against this backdrop, Hiromichi Shirakawa, chief Japan economist at Credit Suisse, explained that:

“The survey results appeared to confirm continued gradual moderation in economic activities despite a temporary support from a pick-up in domestic consumer demand ahead of the VAT hike. Still, deterioration in corporate confidence was modest, probably not necessarily urging the BoJ to take meaningful actions at the end of October.”

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