Japanese Manufacturers: Updated Oct. 19, 2023

 Article Source: https://mainichi.jp/english/articles/20230703/p2g/00m/0bu/024000c

Article:

TOKYO (Kyodo) -- Business confidence among major Japanese manufacturers improved in June for the first time in seven quarters, rising to 5 from 1 in March, the Bank of Japan said Monday, amid the easing of COVID-related supply bottlenecks and falling raw material costs.

The reading of the key index measuring confidence among companies such as those in the auto and electronics sectors beat the average market forecast of 3 in a Kyodo News survey.

Ideas:

Business confidence is very much a business to business situation. Indexes are good to see the possible general feeling or trend, but it still comes down to a business to business situation. One might feel good about the current situation while another business might not feel so good about the current business situation.

Time will tell if the business confidence is sustainable and if material costs and energy costs continue to decrease, if not, the confidence, might be there tomorrow.

Auto and electronics are heavy export oriented sectors. If supply chains back to normal and or global demand is somewhat OK, then those sectors should be near normalcy.

Article:

The index for large non-manufacturers, including the service sector, rose to 23 from 20 in the previous survey, the highest reading since June 2019.

Service providers continued to benefit from the lifting of anti-coronavirus curbs and a revival of inbound tourism. The hotel and restaurant sector turned optimistic, with the index rising sharply to 36 from 0, improving to the highest level since comparable data became available in 2004.

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

Ideas:

Services providers is a large group and should be broken down into small groups such as hotels in one group and restaurants in another group. But its good that the services sector is finally getting back to normal or near normal.

While getting back to normal and with more and more international tourists again entering Japan, are there enough workers in the hotels and restaurants to meet the needs of customers.

The services sector had to lay-off a lot of workers during the pandemic and are they able to hire enough workers again to meet the needs, and are the salaries to be high enough to get young workers to work in the hotels and restaurants.

As Japan is facing a critical labor shortage some sectors or industries are going to be short-handed if they don't pay good wages and or don't have good work/life balance situations, as young workers today don't want long hours for low pay.

Article:

"Manufacturers do not appear to be worried too much about the risks of a slowdown in overseas economies as far as the survey goes," said Shotaro Kugo, senior economist at Daiwa Institute of Research.

Automakers were more optimistic than three months earlier due to a pickup in production that had been hurt by parts shortages.

Sentiment also improved among companies manufacturing textiles, petroleum and coal products, steel and food as a surge in raw material prices paused and more firms were able to raise prices to pass on higher costs, according to the quarterly survey.

Ideas:

Manufacturing can sometimes be very cyclical or not a constant linear path, meaning there are sometimes stops and starts in production lines due supply chain challenges, parts challenges, and of course the pandemic caused many stops and starts over the past two or three years.

There are many different kinds of autos, trucks etc. being produced and they are not being exported to the US or even China and the global auto market is huge and as such global demand while, not good so in one area or country, might be OK, in another area or country.

Manufacturing and exporting is still a key economic driver or key component of the Japanese economy, so while maybe only 20 percent of the overall economy, its still big enough to affect on what happens in Japan and globally.

Article:

The BOJ said manufacturers' confidence is expected to improve to 9 from 5. Sentiment among non-manufacturers, however, is forecast to worsen to 20 from 23, after rising for five quarters.

"The service sector's recovery from the COVID fallout may be peaking, as accelerating inflation will likely weigh on consumers' spending appetite," Kugo added.

Japan's economy has been recovering with modest April-June growth expected, helped by increased capital spending and resilient private consumption despite rising prices for everyday goods.

Ideas:

The services sector, recently has seen a surge in customers as the pandemic has ended and customers needed or wanted to get back to normal and some spending and other economic activities. 

However, as with all novelty activities people now be satiated with getting out and spending and doing things, after a long time of not, and now they want to get back to normal and not go out so much but only when needed or when they want to.

And then add in the inflation challenges people might want or need to cut-back on what they do until inflation decreases.

Article:

Companies in all sectors, also including small and midsize firms, plan to increase investment by 11.8 percent from the previous year, according to the survey.

Kugo said big companies are stepping up investment to drive green and digital transformation, and cope with labor shortages, adding whether smaller firms follow suit will be key.

Slowing global economic growth is a concern for Japanese companies following rapid interest rate hikes by major central banks in the United States and Europe.

Ideas:

A 11.8 percent increase in investments is good but what was it year earlier or even a quarter earlier as stats need to be seen over-time and not a one time idea.

Small and medium sized companies might not have the resources needed to match what large companies do related to green and digital transformations. 

For example, can all small shops transform as needed or can they only do what they do and maybe miss out or not follow the trend toward transformation.

 Labor shortages in many industries might many to begin to think about using AI or other transformations as a way to beat the labor shortage.

Companies, both large and small that exports and depend on global demand, will need to adjust the expectation and maybe for a quarter two expect less global sales than usual.

Article:

The falling yen is also a mixed bag for Japan Inc. as it boosts exporters' profits made overseas in yen terms but inflates costs for importers.

The BOJ, which has remained the most dovish among the major central banks of the Group of Seven countries, will examine the latest Tankan survey results at its policy-setting meeting in late July.

Ideas:

The weak yen, while good for exporters, who can get more for their sales overseas, but they too need to pay for higher imports costs on materials that are imported into Japan and used by the manufacturers.

Unfortunately, not all companies can afford or have the resources to buy with US dollars which would ease the burden on import costs for some.

The Bank of Japan strategy of keeping its key rate 0 points might be a good strategy as increasing the key rate, as seen in the US doesn't exactly bring down inflation as needed.

So the BOJ letting inflation, for the most part, to just let it run its course might be the best strategy for Japan at this time.

Article:

While companies lifted their assumed dollar-yen exchange rate for fiscal 2023 from the March projection to 132.43 yen, it was sharply lower than the 144 yen level seen on Monday, with the Japanese currency weakening as the BOJ persists with monetary easing.

The euro-yen rate was also raised to 140.11 yen, compared with around 157 yen at present.

The BOJ surveyed 9,147 companies, of which 99.4 percent responded between May 29 and Friday.

Ideas:

Most large Japanese companies probably do most of their international transactions in US dollars as a way to avoid the weak yen.

Exporters might still require their transactions in Japan as they see it as benefit with the weak yen.

But maybe many companies don't have the resources needed to have transactions in the US dollar ad as such have to take the weak yen as is and live with it.

The weak yen and import and inflation situation has been on-going for two or three years but the BOJ has remained steadfast  in its strategy and approach of keeping the key rate at 0 percent or points while the US now is at 5.5 points and South Korea is at  3.5 points.

But South Korea is now not increasing its rate as its economy is now not so good, despite inflation, and they are taking a wait and see approach to what is going to happens in the future with its economy.

Have a nice day and be safe!