Japan Manufacturing Sentiment:

 Article Source: https://mainichi.jp/english/articles/20220701/p2g/00m/0bu/016000c

Article:

TOKYO (Kyodo) -- Business confidence among major Japanese manufacturers worsened for the second straight quarter in June, affected by rising energy and raw material costs amid Russia's invasion of Ukraine and supply crunches caused by lockdowns in China, the Bank of Japan's Tankan survey showed Friday.

The key index measuring sentiment among companies such as automakers and electronics makers dropped to 9 from 14 marked three months earlier. It was below the average market forecast of 13 in a Kyodo News survey.

The index for large nonmanufacturers, including the service sector, rose to 13 from 9 in the previous survey, seeing the first improvement since the December 2021 report, reflecting a recovery from the impact of the coronavirus pandemic.

Ideas:

It's not a suprise the manufacturing sentiment has been decreasing with the increase in energy costs, raw material costs, and shipping delays related to the China situation.

And then add in the continued shortage of parts and supplies and again it's not much of a surprise at this time.

And add in the weakening yen which makes prices for imports such as raw materials, energy, and parts become even more expensive.

Its good service type companies are finally feeling better about their situation and two plus years of not so good condtions.

Article:

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

Among major manufacturers, confidence in the auto sector fell further to minus 19 from minus 15 in March, while that in the production machinery segment declined to 34 from 43, hurt by higher material prices and lockdowns in China due to the COVID-19 pandemic.

"The impact of the lockdowns was felt in a wide range of sectors, including textiles, lumber and wood products, iron and steel and production machinery, said Shunsuke Kobayashi, chief economist at Mizuho Securities Co.

Ideas:

There might be many Japanese parts manufacuring companies operating in China either because of less costs and or other reasons.

The China lockdown might make some companies to consider changing countries if they are able to do.

For example Vietnam might be a reasonable alternative with maybe even lower labor costs.

But unfortunately most likely companies are unable to move or change countries and manufacturers in Japan will just have find ways to keep things going despite the China situation.

Article:

Although the deterioration in the auto sector was somewhat limited after having fallen sharply in the previous quarter, curtailment of auto production has dealt a blow to sectors that had planned to procure parts for automakers.

Automakers, including Toyota Motor Corp., have been forced to cut output due to difficulty procuring parts like semiconductors.

Russia's war in Ukraine, coupled with the yen's sharp falls against major currencies, such as the U.S. dollar and the euro, has sharply increased crude oil and commodity prices amid a spike in geopolitical risks and supply concerns. Russia is a major exporter of crude oil and natural gas.

Ideas:

Yes, there are a lot of challenges out there now for Japanese companies. As if the 2020-2022 pandemic period was enough challenges all of the latest challenges don't help many companies in Japan.

And even the Ukraine situation it seems to be even more challenging at the moment.

Of course no one could have expected all of this two years ago but maybe there should always be some contingency plans that compnies have for such crisis situations.

Companies, if possible, should have a division or department that runs future crisis scnearios and has in place plans just in case unknown sitautions like these continue to happen.

Article:

Reflecting recent rising prices, surveyed firms expected the nation's consumer price index to climb 2.4 percent a year later on average, higher than the 1.8 percent gain projected three months ago.

In the latest quarter, sentiment worsened in 12 out of 16 sectors among the manufacturers, while it improved for half of the 12 nonmanufacturing sectors, according to the survey.

Over the next three months, sentiment among major manufacturers is expected to rise slightly to 10, and that among major nonmanufacturers is projected to remain flat at 13.

Ideas:

It must be remembered that even though some or many companies feel not so good, there might be some companies that don't feel the same way, as industry condidtions might not be the same from company to company. 

So yes, overall it doesn't look good but that doesn't mean every company in a specific industry feels the same as each company has different approaches and strategies that they use to work through challenges.

Even though non-manufacturers might be feeling a little better most likely they might not feel exactly perfect at this time after two plus years of lost sales and or lost profits.

Article:

For nonmanufacturers, sentiment among services for individuals covering travel and entertainment jumped to 18 from minus 14 and that for accommodations, eating and drinking services improved to minus 31 from minus 56, as Japan lifted anti-virus curbs and gradually eased entry restrictions on foreign travelers.

The improvement "reflects the demand that has built up over the last three years and a resumption of economic activities," said Kobayashi, adding the recovery is expected to continue in services for individuals and accommodations and the eating and drinking services sectors.

Ideas:

Again, service type companies might be feeling a little better but most likely they don't feel 100 percent positive just yet, as there is always another pandemic wave around the corner which might reduce customers from not getting out and about.

But at least the government probably is not going to go back to the 2020 restrictions and restaurants and others are able to stay open during those hours when customers are most likely to frequent their places of business.

But to be fair and honest the foreign travel situation, as it is, is not going to make any kind of dent in helping economic recovery.

There might be some international travlers willing to come to Japan on tours, but most international travlers just don't wont do it.

Jaapan like the rest of the world just needs to get back to everything related to 2019 including visa-free travel and allowing all to come to Japan with no restritions like in the EU and the US.

Article:

Looking beyond the next several quarters, however, Kobayashi said there are uncertainties about the extent of the recovery.

"Inbound tourism has not fully recovered as China, which makes up a large portion of the demand, has not reopened," he said.

From June 1, Japan doubled its cap on daily arrivals to the country to 20,000 and allowed most to forgo COVID-19 tests and quarantine periods. It also restarted visa procedures on June 10 to accept foreign tourists in stages, although they are limited to people arriving on guided tours from 98 countries and regions.

Ideas:

Again as other repots have shown, tourists just don't want to go to Japan on package tours and they want to travel individually or in some individual groups.

The visa process should also be change back to a visa-free situaton. Keep the limit of 20,000 or 50,000 but allow individuals to arrive in Japan by, if possible, limiting the number of people on flights each day.

Allow tourists to take advantage of the weak yen and Japan will see a huge increase in international travelers if they can get a visa-free situation.

Article:

Companies in the Tankan survey expect the dollar to average 118.96 yen, far below the 137 yen line it reached earlier this week. The euro is projected at 131.60 yen for the current fiscal year.

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

The BOJ surveyed 9,313 companies, of which 99.3 percent responded between May 30 and Thursday.

Ideas:

The BOJ most likely is not going to do much about the yen at this time as it's a benefit for exporters which seem to have more power in the Japanease economy than importers.

And with the weak yen increasing raw material prices and energy prices of even export companies the BOJ will allow the weak yen to help exporters overcome their challenges with an increase in revenue they receive from the weak yen.

And then the Japanese government should do their part to help importers with continued subsidies and maybe even price controls on some products.

Have a nice day and be safe!