TOKYO, Mar 12: Confidence at big Japanese manufacturers worsened in January-March and is seen turning negative in the second quarter as a slumping yen ramped up the costs of raw material imports, a survey showed, complicating Tokyo’s stimulus-driven campaign to revive the economy. The quarterly poll by the Ministry of Finance and the Cabinet Office released on Thursday suggests the drawbacks of a weak yen may be outweighing its benefits, which have not spread to broader sectors of the economy.
The loss of confidence comes as the Bank of Japan remains committed to its massive monetary easing programme even as the U.S. Federal Reserve moves closer to raising interest rates, triggering a renewed slide in the yen. The yen skidded to 8-year lows against the dollar to above 122 yen on Tuesday on expectations the Fed may raise rates as early as in June, heightening worries that an unrelenting drop in the Japanese currency could prove more harmful in the long run. The business survey index (BSI) of sentiment at large manufacturers stood at plus 2.4 in January-March, compared with plus 8.1 in the prior three months.
The sentiment index is seen deteriorating further to minus 0.9 in the second quarter.
“Our view remains unchanged that the economy is in a moderate recovery trend,” said a finance ministry official. “We hear from companies that they are facing rising raw materials costs on higher import prices, a labour shortage and increase in electricity bills.”
The survey also showed Japanese firms are expected to raise capital spending in the current fiscal year to March, but they are seen cutting expenditures in the next fiscal year, adding to concerns about soft business investment. Capital spending and wages are essential for the success of Japan’s reflationary policies known as “Abenomics”, but companies have been so far slow to implement their business investment plans due to uncertainty over the growth outlook. Confidence at all firms including service-sector stood at plus 1.9 in January-March, compared with plus 5.0 in the prior quarter. It is seen sliding further to plus 1.0 in April-June. The latest survey follows a recent batch of soft indicators for capital spending, raising doubt about strength of business activity.
However, the finance ministry official told reporters that companies tend to show moderate capital spending plans for the next fiscal year at this time of year, and to revise up their investments when they firm up plans as the year progresses. (AGENCIES)
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