Japan Manufacturer Sentiment:

 Article Source: https://mainichi.jp/english/articles/20220401/p2g/00m/0bu/024000c

Article:

TOKYO (Kyodo) -- Business confidence among major Japanese manufacturers worsened for the first time in seven quarters in March, hurt by energy and raw material costs that surged on Russia's invasion of Ukraine and pandemic-related supply bottlenecks, the Bank of Japan's Tankan survey showed Friday.

The key index measuring sentiment among companies such as automakers and electronics makers dropped to 14 in March from 17 logged three months earlier, the lowest level since June 2021. It was above the average market forecast of 11 in a Kyodo News survey.

The index for large nonmanufacturers, including the service sector, fell to 9 from 10 in the previous survey in December, highlighting the severe blow dealt by restrictions imposed in response to the COVID-19 pandemic. The reading also marked the first deterioration in seven quarters.
Ideas:

Business confidence always goes through periods of ups and downs and now it quite obvious with the increasing prices of energy and raw materals and the Ukraine situation that businesses are not feeling too good at the moment.

And then add in the challenges in China with the shipping and pandemic situations continuing on and business confidence is probably even worse.

Its probably going to take some time before businesses finally begin to feel good about the future. It might even happen in 2022 as most likely energy prices and raw material prices will continue to increase in Japan and globally.

Article:

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

Russia's attack on Ukraine that began on Feb. 24 has sent crude oil and commodity prices sharply higher amid a spike in geopolitical risk and supply concerns. Russia is a major exporter of crude oil and natural gas.

The yen has been falling sharply against major currencies such as the U.S. dollar and the euro, inflating the cost of imported raw materials.

Ideas:

First there was the 2 year long pandemic that kept businesses challenged along with the Japanease government suggestions related to reduce some economic activity. Then there was the double threat of the delta virus and then the omicron virus with kept the situation going.

And then add in the semiconductor chip challenges which has effected some or many comapnies in Japan and globally which has slowed down business and economic growth.

And now add in the Ukraine situation and it gets even more challenging.

And finally add in the weakening yen, and the situation becomes even more complicated for Japaneses businesses and the economy. 

Article:

"The results reflect increasing worries among companies about surging raw material costs. The situation in Ukraine and the yen's recent sharp depreciation are making it hard for many firms to be optimistic," said Toru Suehiro, a senior economist at Daiwa Securities Co.

Higher costs are threatening to erode profits with wholesale price inflation accelerating at its fastest pace in decades. Sentiment among firms in sectors ranging from pulp and lumber to chemicals and food all deteriorated.

The surge in costs comes as manufacturers have been grappling with parts shortages caused by the COVID-19 pandemic.

Ideas:

So even though the pandemic appears to be winding down, the after effects seem to be just as bad as if it were the pandemic.

Just how long are all of these challenges going to last is another challenge in itself. If businesses knew when the challenges would end or begin to subside they might be able to see some light at the end of the tunnel and begin to plan for the future instead of being in survival mode that maybe some might be in now.

Most likely the suggestion by Prime Minister Kishida for companies to increase wages by at least 3 percent is most likely not going to happen as profits are eroding and there doesn't seem to be an off ramp for any of the current economic challenges at this time.

The continued parts shortages is another challenge that many manufactures have to deal with along with all of the challenges.

Article:

Japanese automakers, including Toyota Motor Corp., have been forced to cut output due to difficulty in procuring parts such as semiconductors.

Confidence in the auto sector fell further to minus 15 in March from minus 8 in December, though it is projected to improve to minus 1 in the coming months.

Economists say a growing number of companies are protecting profits by passing on higher raw material costs to consumers.

Ideas:

Business confidence might improve some but its a long way  to go before we see any kind of real positives from businessess.

When business confidence is not where it should be, most likely there is not going to be new investments, any new projects, and most likely no increases in wages any time in the near future.

As prices related to many things can companies need continue to increase, companies have no choice but to pass on some or all of their increased costs. Before most companies probably absorbed their increased costs and even though their profit margins might not have been where they wanted them to be.

But not as prices just keep going up and profit margins just keep shrinking, they might think they have no choice now and have to pass on or all of their costs.

Article:

"As the infection situation stabilizes, service providers are expected to see a recovery in demand," Suehiro said. "But consumers, who have to pay more for energy and food items due to price hikes, may have to cut spending on services (such as entertainment and travel), pressuring corporate earnings over the longer term."

The lingering impact of the COVID-19 pandemic was also felt among service providers including hotel operators, restauranteurs and retailers, as anti-virus curbs were in place in Tokyo, Osaka and other areas until March. Despite a recent improvement in the infection situation, concerns have grown about the spread of the more transmissible BA.2 Omicron subvariant.

Hotel and restaurant operators were deeply pessimistic, with the index at minus 56, down 5 points from December, according to the survey.

Ideas:

The services sector was hit the hardest during the pandemic as person to person contact was limited or even discouraged 

So consumers/customers were staying away which made it difficult for many service type businesses. And now there is the double threat of energy and food price increases which might cause some consumer to either cut back and or find substitutes for what they usually buy.

But to be somewhat positive, the Japanese economy is still the 3rd largest economy in the world. So despite some or many challenges, it doesn't mean everyone is not spending money in the economy.

Yes there might be significant drop in consumer spending but that doesn't mean the entire economy is now dead. We need to keep things in perspective if we can that the Japanese economy continues to operate even at a reduced level.

Article:

Over the next three months, sentiment among manufacturers is expected to worsen further to 9 while that among nonmanufacturers will likely fall to 7, according to the Tankan survey.

Large companies, defined as those with 1 billion yen ($8.2 million) or more in capital, expect a 2.2 percent increase in capital spending for the current business year through next March. For the just-ended business year, it is expected to have increased 5.9 percent.

The yen tumbled to an over six-year low last week amid the prospect of diverging monetary policies between the BOJ and the U.S. Federal Reserve, which is expected to go ahead with multiple rate hikes this year.

Ideas:

Business sentiment might drop but what does that really mean, as businesses are made up of people and people can changes their minds about what they want to do and how they feel about things.

So even though we see a not so good business sentiment some companies are still going to invest in capital spending as maybe they might think, when economic conditions are not so good, that might be the best time to invest and then be prepared for when the economy does begin to improve.

Its good that the BOJ is not following the same path as the US Federal Reserve  as each economy is a unique organism with its own unique challenges. What might work in the US or the EU might not work in Japan.

Article:

Companies in the Tankan survey expect the dollar to average 111.93 yen, much lower than the 122 yen zone seen recently. The euro is projected at 128.18 yen for the current fiscal year.

The BOJ surveyed 9,362 companies, of which 99.1 percent responded between Feb. 24 and Thursday.

Ideas:

A weak yen used to be a positive for exporters and a negative for importers. Some in the Japanese government used to think a weak yen was good for the Japanese economy as it brought in more income from exporters.

But maybe now its become too weak as now import prices, combined with increases in energy prices and raw materials prices has caused too many unexpected challenges for the Japanese economy.

If it was just one or the other, meaning a weak yen only or increases in raw materials and energy prices only then one or the other alone might be livable or acceptable.

But with the combination of factors it puts too much pressure on the businesses and the Japanese econony, not to mention on consumers and consumer spending.

Have a nice day and be safe!