Japan manufacturers' mood down amid weak yen, global risks – Reuters Tankan

TOKYO (Reuters) – Japanese manufacturing optimism dropped to a 22-month low in November, while the service-sector mood brightened to a three-year high, the Reuters Tankan poll showed, underscoring the fragility and unevenness of Japan’s post-COVID recovery.

The monthly poll, which tracks the closely watched tankan quarterly survey of the Bank of Japan (BOJ), found that manufacturers expected their business conditions to improve over the coming three months while service-sector respondents expected little change.

The mixed results underscored policymakers’ challenge in sustaining the recovery. Economists estimate the world’s number-three economy slowed sharply in the third quarter as yen falls pushed living costs higher and as risk of global slowdown rose.

Prime Minister Fumio Kishida’s government has compiled a second supplementary budget, with stimulus spending worth 29.1 trillion yen ($198 billion), to help households and businesses cope with surging costs. But critics say the extra spending may do more harm than good, given its reliance on expanded borrowing by a country that already has the industrial world’s heaviest debt burden.

In the Reuters poll of 495 large companies, in which 247 firms responded on condition of anonymity, many voiced concerns about the yen’s weakness driving up import costs and about prolonged chip shortages weighing on car output and risks from overseas, such as China’s slowdown and the war in Ukraine.

“Rising costs of crude oil and steel materials on top of the Ukraine crisis and escalating U.S.-China trade frictions have all made our clients cautious about capital expenditure,” wrote a manager at a machinery maker on condition of anonymity.

“China’s slowdown and prolonged slump in auto production due to chip shortages and elevated costs of steel materials and energy have prevented increased sales from boosting profits,” a manager at another machinery maker wrote in the survey.

The sentiment index for manufacturers stood at plus 2, down from the previous month’s plus 5, the lowest reading since minus 1 seen in January 2021, according to the survey, conducted from Oct. 25 to Nov. 4. The index is expected to rebound to plus 7 in February after declining for a third month in a row in November.

The service-sector index rose five points to plus 20, the best reading since the plus 25 registered in October 2019 shortly before the outbreak of the pandemic, it showed. The index is expected to slip just one point to plus 19 over the coming three months.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A positive figure means optimists outnumber pessimists.

($1 = 146.7600 yen)

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