Confidence among Japan’s large manufacturers slipped a little from the highest level in more than a decade during the first quarter as a strengthening currency clouded the profit outlook.
A stronger yen will cut into profits for many big Japanese manufacturers. That could damp pay raises and new investment in plant and equipment, hurting the Bank of Japan’s efforts to end deflation. With the yen ranking as the second-biggest gainer among major currencies in the first quarter, and a growing risk of a global trade war, the BOJ is seen as even less likely to begin normalizing monetary policy anytime soon.
- “Uncertainties are growing for business owners,” Norio Miyagawa, a senior economist at Mizuho Securities Co., said before today’s report was released. “They must be feeling uneasy as the strong yen directly affects their profits.”
- “Still, sentiment is unlikely to plunge in coming months because economic fundamentals aren’t too bad,” Miyagawa said. “I expect wage growth to remain tepid and the BOJ to continue its monetary stimulus for a while.”
- “Headwinds are intensifying” for Japanese businesses, Tsuyoshi Ueno, a senior economist at NLI Research Institute, wrote in a report before the data were released. He cited possible further gains by the yen and declines in stock prices, as well as fear of a global trade war as reasons for anxiety among businesses.
- Large manufacturers forecast the yen will trade at 109.66 per dollar in the fiscal year ending in March 2019.
- Among small companies, manufacturers’ sentiment was unchanged at 15, while that of service firms rose to 10 from 9.
- The Tankan was conducted from Feb. 26 to Mar. 30, surveyed 10,020 companies.
— With assistance by Jason Clenfield