Japan Company Business Confidence: Updated Dec. 28

 https://mainichi.jp/english/articles/20211213/p2g/00m/0bu/014000c

Article:

TOKYO (Kyodo) -- Business confidence among major Japanese nonmanufacturers improved to pre-pandemic levels in December, enhanced by the lifting of a COVID-19 state of emergency, but the improvement for manufacturers paused with parts shortages causing pain for automakers, the Bank of Japan said Monday.

In the quarterly "Tankan" survey, the key confidence index for nonmanufacturers, including the services sector, rose to 9 from 2 in the previous September survey, marking the sixth straight quarter of improvement and the highest reading since December 2019.

The recovery in the services sector still lags behind big manufacturers, whose confidence was flat at 18 after five quarters of gain, the survey showed.

Ideas:

As manufacturing is mostly a non-contact business, meaning they don't rely on customer contacts other than mabye from subcontractors or other businesses. As such they've been able to bounce back more quickly from the pandemic thean service sector buisnesses.

Of course now there is supply shortages including semiconductor chips which is delaying a full recovery in the manufacturing industry.

The services sectors of course has a long way to go before it gets back to some kind of normal or even a new normal as the services sector is all about customers and customer service, where customers have been recluctant to visit certain service type businesses.

Of course some service type businesses maybe are better off than others. Such as maybe some retail stores, some restaurants are doing better than some other places. 

But most likely many service sector businesses are a long way from seeing the pre-pandemic level in terms of sales and revenue.

Article:

The average market forecasts were 7 for the nonmanufacturing sector and 18 for manufacturers in a Kyodo News survey.

The Tankan index represents the percentage of companies reporting favorable conditions minus the percentage reporting unfavorable ones.

With the virus emergency lifted Japan-wide since Oct. 1, economic activity has been picking up, giving some relief to service providers such as dining establishments, bars and hotels which had seen a sharp drop in customers and sales.

Sentiment among hotel and restaurant operators jumped 24 points from September to minus 50 while that among providers of face-to-face services improved 36 points to minus 9.

Ideas:

A recent article in the last few days suggested that that some 43,000 people had lost their jobs, so far, during the pandemic. Its not much of an exageration to think that most of those jobs lost, if not all, were service sector type jobs.

A lose of 43,000 jobs in a population fo 125 million doesn't seem like much except if its someone in your family who lost thier job. And that maybe doesn't mention the number of service sector type businesses that have closed during the pandemic.

If the index is only at - 50 for service companies migh indicate the service sector has a long way to go before it feels good about the economy.

Sources in Japan, in the Yokohama area, say that when they go to Yokohama eki, station, and or Landmark Tower, it seems like all the stores and coffee shops are very busy and they can't find parking for example at Landmark tower, and almost never can find seats at Tullys or Starbucks to sit down and drink some coffee.

But these kinds of service sector places are only a small part of all of the service sector businesses, as there are probably many more who don't see the steady stream of customers returning.

Article:

For manufacturers, parts shortages stemming from factory shutdowns in some Southeast Asian nations with surging COVID-19 cases and soaring raw materials costs have become a drag after they recovered faster than service providers from the pandemic fallout.

Automakers were more pessimistic than three months ago as sentiment was down 1 point to minus 8.

"The improvement in the nonmanufacturing sector was larger than expected but the outlook remains weak despite the expected restart of 'Go To' campaigns" by the government to spur tourism by offering discounts, said Toru Suehiro, a senior economist at Daiwa Securities Co.

Ideas:

What all of this shows is that both sectors, the manufacturing sector and the non-manufacturing sector, still have a long way to go, at least in how they feel about the Japanese economy now and in the future.

Three months ago the automakers most likely didn't think the supply shortages would last this long. For example Toyota keeps changing its production schedules based on supply shortages. One month or  week its says production will be back to normal and the next month say they have to reduce production in some of its plants.

Soaring or increasing raw material costs are not going to help companies increase wages as Kishida wants to see in April 2022. The increase in supply cost are going to be a major constraint for companies and won't give them much room to increase wages.

Usually companies are reluctant to pass on their costs up or down the supply chain and to the eventual final link, the consumer.

But companies might not have a choice and if they haven't already pass on all or part of their increased costs. 

But just today or yesterday a new article has come out, to be talked about at length later, about the possibility of large companies not accepting the increase in prices from their subcontractors, usually small and medium sized companies.

Some would call this an abuse of market power, meaning they have more leverage than the smaller subcontractors and basically can dictate or demand what prices they want from the smaller companies.

Of course the smaller subcontractors may feel they have no choice but to charge the prices the big companies want for fear of losing the big companies business.

The outlook for the services sector most likely is going to remain weak for sometime. But as in any economy, even without the pandemic, there are always some businesses that do better than other businesses. As such some service sector businesses are going to recover faster than some other service sector businesses.

Article:

"The Tankan survey shows companies aren't optimistic about the outlook, being unsure about the impact of the Omicron variant (of the novel coronavirus)," Suehiro said, adding that Japan's economic recovery is expected to be only moderate going forward.

Prime Minister Fumio Kishida has said the government will decide on the timing for resuming the travel subsidy program after looking at the infection situation.

Japan has seen a clear downturn in newly confirmed coronavirus cases in recent weeks, though concern remains over the Omicron variant that could put a dampener on the economy. The impact of the new variant was not reflected fully in the latest data, a BOJ official said.

Sentiment among manufacturers is expected to worsen to 13 from 18, while nonmanufacturers' confidence is seen deteriorating slightly to 8 from 9.

Ideas:

The new virus situation, again, most likely is causing stress for many companies as to what going to happen in future. And as Japan is in New Year holiday period, some consumers might be thinking twice about traveling and being out and about in the large shopping areas, such as almost every large train or subway station or the large mall type places like Landmark tower in Yokohama.

As such maybe many retailers and hotels are concerned about the virus situation, and most likely don't expect a pre-pandemic level of sales and revenue which might be normal for the New Year period.

Even a moderate level of recovery is better than nothing, as the economy can begin to build on the moderate growth and then maybe begin to see a multiplier effect begin to gain some momentum meaning more economy activity begins to spur more economic activity and so on.

So while the new virus variant is spreading, it might not reach the level of the delta variant that hit Japan in July and August, as in the winter Japanese citizens where their masks more than other countres, which might help some in reducing the numer of omicron cases.

And yes the sentiment of companies could be worse than before they evenually start to see "daylight at the end of the tunnel" meaning a definite improvement in overall economy.

Article:

The Tankan survey is among the data used by the BOJ during its two-day policy-setting meeting from Thursday. The Policy Board is expected to check the state of the economy and discuss what to do with its funding support program introduced last year for companies reeling from the COVID-19 impact.

The BOJ is considering scaling back support for big companies as their funding conditions have been improving, sources familiar with the matter have said.

The index for corporate funding, or the percentage of companies reporting financial conditions are easy minus the percentage saying they are tight, was unchanged at 16 among big firms, while the figure for small and midsize companies was down 1 point at 8.

Ideas:

In recent and related article the BOJ has indicated its going to keep its easy money policy for small and medium sized companies while reducing some support to bigger companies that are showing signs of improvement.

Now is not the time to lesson support for companies as the economy is still in severed phase despite some moderate recovery in some areas.

If the economy were in a normal period, without the pandemic, some would say "let the market be" or "let the market decide" on those companies who do good and and those who don't go good.

But these are not normal times and sometimes the government does need to step in for the good of the economy and the good of society, as much as possible.

It seem whenever there is any economic crisis its always the small and medium sized companies that need the most help as they don't have the resources to overcome an economic crisis. The pandemic is no exception as most likely most of the 43,000 jobs lost were related to small and medium sizes businesses, and again most likely related mostly to the service sector.

Article:

Large companies, defined as those with 1 billion yen ($8.8 million) or more in capital, expect a 9.3 percent increase in capital spending for the current business year through March, down 0.7 percentage point from September.

Companies in the survey expect the U.S. dollar to trade at 109.09 yen for the current business year, compared with 107.64 yen three months ago, while they put the euro at 127.71 yen, up from 126.50 yen.

The yen's weakness is a mixed bag as it boosts exporters' overseas profits when repatriated but inflates import costs.

The BOJ surveyed 9,328 companies, of which 99.3 percent responded between Nov. 10 and Friday.

Ideas:

Capital speninding usually is not a linear trend meaning there are periods strong capital spending and periods of less capital spending. The only concern if the trend is continuously down for a long period of time such as more than a quarter or two.

As Japan is a major export country/economy, a weaker yen is good for exporters but not so good for importers.

The problem now is not just that they yen is weak but that there are other multiple factors affecting importers and other companies such as increases in supply prices, above and beyond the yen weakness, the increase in logistics and shipping prices, the increase in energy prices in including gas and oil.

As such all companies and not just importers, in some way or another are seeing increases in prices.

Have a nice day and be safe!