Big Company Sentiment:

 Article Source:

https://mainichi.jp/english/articles/20230403/p2g/00m/0bu/011000c

Article:

TOKYO (Kyodo) -- Business confidence among major Japanese manufacturers worsened for the fifth straight quarter in March to its lowest level in over two years, dampened by higher raw material costs and the prospect of slowing global economic growth, the Bank of Japan said Monday.

The reading of the key index measuring confidence among companies such as those in the auto and electronics sectors fell to 1 from 7 in December. It was weaker than the average market forecast of 3 in a Kyodo News survey and the lowest since minus 10 in December 2020.

The index for large nonmanufacturers, including the service sector, rose to 20 from 19 in the previous survey, a level last seen before the COVID-19 pandemic. It improved for the fourth straight quarter, helped by the lifting of antivirus curbs and a recovery of inbound tourism.

Ideas:

The business cycle might have some relationship to the sentiment as there are always periods of positives and periods of negatives. 

But there is no doubt the continued increase in oil prices and raw material costs has dampened sentiment among big companies.

At the same time the services sector continues to improve as more and more consumers are out and about shopping and doing things. 

And of course tourism has helped greatly, but the real challenge as mentioned in other articles in getting tourism workers back or replacing those that left or were let go before the pandemic.

Article:

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

Higher raw material costs are weighing on sectors that are heavily reliant on them. Confidence among firms dealing with oil and coal products, paper and pulp, as well as food all deteriorated as they remained pessimistic.

"Manufacturers' sentiment was weak due to slowing exports and the emergence of financial concerns. Much depends on whether banking woes will deepen or ease," said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.

Ideas:

Its easy to say but of course maybe companies, if they can, can look for other sources of materials, but of course with contracts and other issues, it might not be easy for companies to find other sources of materials.

Exporting, while maybe only 20 percent of Japan's GDP, is still big enough to have an impact on the Japanese economy.

If Japanese companies are relying on just one or two countries for exporting, they of course to spread out their exports as much as possible.

Its quite possible the China situation might have some impact on the Japanese banking system over time if they gave loans to Evergrande in China, but that might not be the case.

Article:

Automakers, which have been negotiating semiconductor shortages that led to production cuts, were still pessimistic despite a recovery.

Japan's economy likely expanded in the January-March quarter as pent-up demand for services lent support despite accelerating inflation denting consumer sentiment.

Still, concerns that aggressive monetary tightening will slow growth were compounded by banking woes following the collapse of two regional banks in the United States and Credit Suisse's rescue by rival Swiss lender UBS.

Ideas:

The reason automakers might be pessimistic is the shortage just didn't start or happen during the pandemic but was going on, or at least the beginning of the shortage of semiconductor materials was starting to show signs of weakness before the pandemic.

So now there might be a chance there is real shortage of trying to find the materials needed for semiconductors now which of course is going to drive up the prices.

Consumer sentiment and demand will continue to be less than what is should be until prices come down and or until wages get to the point workers/consumers feel good about their wages.

The global banking system, while very much connected these day might have some affect on the Japanese banking system over time. But more needs to happen and see what we can see for sure just what if any the affects might be.

Article:

In the months ahead, manufacturers' confidence is expected to improve slightly to 3 from 1 while sentiment among non-manufacturers is forecast to drop to 15 from 20.

The quarterly survey pointed to a positive stance on capital investment, a key driver of the economy. Companies are planning to increase capital spending by 3.9 percent in the business year starting April from the previous year.

Many firms tend to be conservative about their business plans at the start of a new fiscal year. The relatively strong appetite for investment reflects the fact that many firms are planning to catch up on spending previously postponed to cub fixed costs, a BOJ official said.

Ideas:

An economy is very complex as is the manufacturing sector which has many different levels of companies which means maybe not all companies feel the same about the economy and or some might be doing very good while some might not be doing as good. 

Capital spending and capital investments is not always linear meaning not all companies invest or spend at the same time. Some might spend at the beginning of the new year and some might wait until later in the year.

Non-manufacturer sentiment or the services sector might begin to feel the affects of consumers having spent a lot just after everything opened up and now consumers might have reached their saturation point in spending.

And of as the Obon season is ending consumers might not be traveling or spending as much in the fall season.

Article:

Rising raw material costs are already being passed on by a growing number of companies, with consumer price inflation well above the central bank's 2 percent target.

Japanese firms expect inflation to reach a record 2.8 percent a year from now, and stay above the BOJ's target even three years and five years ahead.

The outlook stands in contrast to the central bank's view that the inflation rate will undershoot the target in fiscal 2023 and that its ultralow rate policy should remain in place.

Ideas:

Japanese companies for a long time were reluctant to pass on their costs to the next in the supply chain and or the final customer but as profit margins continue to decrease maybe now they have no choice but to pass on their costs to the next in the supply chain including the customer.

The Bank of Japan's inflation target of 2 percent was always about consumer demand and consumer spending and not so much about inflation related to companies passing on their costs.

But at the same time, if for example consumer demand and consumer spending had increased a lot then maybe companies feel or felt the need to increase prices related to increase demand from consumers. But most likely that is not the case these days.

If companies think inflation will continue then most likely consumers too will think the same thing which means consumer sentiment and consumer spending might be less than expected the next few years.

At this time, the BOJ low policy might be the only thing that is really helping the economy.

Article:

"The BOJ will have to be cautious about normalizing its monetary policy because overall confidence is not strong," said Toru Suehiro, chief economist at Daiwa Securities Co.

The assumed exchange rate for the dollar-yen pair is 131.72 yen for fiscal 2023 from April, compared with 130.65 yen for the just-ended business year. The U.S. dollar was trading around the 133 yen line on Monday, with the Federal Reserve involved in a delicate balancing act between fighting inflation with rate hikes and ensuring financial stability amid banking concerns.

Ideas:

Since 1990 when has the Japanese economy every been strong and or companies having real confidence. 

Central banks don't make quick or drastic moves as they know what they say or do can move market one way or another.

As such the Bank of Japan might think it can't do much at this time until confidence improves.

The difference in the yen and the US dollar has only been import prices more expensive for companies has Japan is heavily reliant on imports of all things.

The US Federal reserve or central banks know the negatives of increasing the rate as it can have major implications for some in the US and global economy. 

But at the same time, its maybe the only real economic tool that central banks have to curb inflation.

Its kind of like taking a medicine that helps but at the same time has some not so good side affects.

Article:

The euro is expected to trade at 138.29 yen, higher than 137.38 yen.

The BOJ surveyed 9,199 companies, of which 99.2 percent responded between Feb. 27 and Friday.

Ideas:

Again as the yen and Euro are much different in value it has an affect on import prices coming from the EU, as again Japan is heavily reliant on imports.

What is interesting of course is tourists from the EU and airline ticket prices. Has it increased or decreased the volume of tourists since Japan re-opened for tourists.

While 9,199 companies surveyed might seem like a lot its just a small number of companies in Japan and there might possibly be a wide range of opinions on the Japanese economy and its outlook. 

Have a nice day and be safe!