Japan Tankan Company Sentiment May Fall to 4-Year Low
Confidence among Japan's largest manufacturers will probably fall to its lowest level in four years, as a stronger yen eats away at exporters' profits and the faltering U.S. economy slows global growth.
The Bank of Japan's Tankan index of manufacturer sentiment will slide for a second quarter to 12 points in March from 19 in December, according to the median estimate of 24 economists surveyed by Bloomberg. The report is due April 1 at 8:50 a.m.
The yen surged to a 12-year high against the dollar last week, oil prices are near a record, and sales to the U.S., the country's biggest market, have dropped five months running. That's taking a toll on Toyota Motor Corp. and other exporters, who generated more than half of Japan's growth last quarter.
“Everything is pointing toward a significant economic slowdown,'' said Tomoko Fujii, head of economics and strategy at Bank of America NA in Tokyo. “The question isn't whether things are good or bad. The question is: how bad?''
The risk of a recession and worsening sentiment among businesses and consumers has investors betting the Bank of Japan will cut interest rates this year. Traders see a 57 percent chance the central bank will lower the key rate from 0.5 percent before December, according to JPMorgan Chase & Co. calculations.
A government survey yesterday showed big manufacturers became the most pessimistic they've been since the report was established in 2004.
Hurt by Yen
“Confidence among large companies has been hurt by slowing global demand and the strengthening of the yen,'' Economic and Fiscal Policy Minister Hiroko Ota said today. “We need to watch the depth and duration of the U.S. slowdown and the effect it will have on the corporate sector.''
Gains in the yen, which has surged 14 percent against the dollar since the December Tankan, may sour the outlook for big makers of cars and electronics. An index measuring large manufacturers' expectations for business conditions next June will slip to 9 from 15, economists said. If realized, that will be the lowest level since September 2003.
Toyota, Japan's biggest carmaker, last week said the company may miss its sales target this year because the yen's gains make its cars more expensive overseas. The rising cost of steel is also making each sale less profitable, it said.
“The rapid fluctuation of the currency and the surge in materials costs are headaches for us,'' Vice President Tokuichi Uranishi said last week. Japan's wholesale prices rose at the fastest pace in 27 years in February http://abc-cashadvance.com fast cash.
Stocks Rally
The yen traded at 100.26 against the dollar as of 12:20 p.m. in Tokyo from 100.74 late yesterday in New York. The Nikkei 225 Stock Average climbed 1.3 percent after U.S. existing home sales unexpectedly rose, boosting confidence consumption in Japan's biggest market will weather the economic slowdown.
Even if the large manufacturer index falls to 13 in next week's survey, it would still be well above the negative numbers recorded during Japan's last recession, which ended in 2002. The survey plunged to minus 51 in 1998, when Asia was in the throes of a currency crisis and the government had to buy failed lenders including Long-Term Credit Bank of Japan Ltd.
The index has been above zero, the threshold indicating optimists outnumber pessimists, since September 2003.
`Not Dreadful'
“Thirteen or 10 or 15, these kinds of numbers tell you economic conditions aren't dreadful. We're a world away from where we were five or six years ago,'' said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. “But things aren't as good as they were six months ago or even three months ago.''
Small businesses, which employ 70 percent of Japan's workers, are suffering more than their larger peers. Profit at small and midsized companies slid 9 percent in the fourth quarter from the same period a year earlier, compared with a 2 percent decline at bigger businesses.
The Bank of Japan's acting Governor Masaaki Shirakawa said last week that smaller companies are getting squeezed by the higher cost of oil and raw materials. That's held down wage growth and stymied consumer spending, which accounts for more than half of the economy.
“It's a tough time for the BOJ, but Shirakawa has said that current rates are already stimulative,'' Bank of America's Fujii said. “Our base scenario is for no rate cut. But if the Tankan's really bad, we'll reconsider.''
Confidence among the nation's largest non-manufacturers, whose customers tend to be domestic, probably fell to 12 from 16, according to economists. That would be the lowest in three years.
Large companies will say they plan to increase capital spending by 0.1 percent in the year starting April 1, economists estimated. Investment plans tend to be conservative at the start of the fiscal year.