Coronavirus sours business sentiment in Japan
Leo Lewis in Tokyo
The Bank of Japan’s closely watched Tankan survey of business sentiment pointed to a sharp deterioration in conditions in the first quarter, with large manufacturers turning pessimistic for the first time since the start of Abenomics over seven years ago.
The Tankan’s index of business conditions for large manufacturers, based on a survey conducted just as the coronavirus was tightening its grip on the global economy in March, dropped from 0 to minus 8, slightly better than the more severe drop to minus 10 predicted by economists.
Nikko Asset Management Chief Global Strategist John Vail said: “The outcome was obviously poor, but for large companies, both in manufacturing and non-manufacturing, they were better than consensus expectations, both in terms of the current situation and the outlook…The numbers do not indicate any panic, unlike some parts elsewhere in the world.”
But order cancellations and acute disruption to supply chains from the coronavirus have caused Japan’s factory activity in March to contract at its fastest pace since the global financial crisis, a separate survey showed on Wednesday.
The reported plunge, which further adds to the recession risks hanging over the world’s third biggest economy, represented the steepest drop in goods production since the period immediately after the quake and tsunami in 2011.
The reading from the Jibun Bank Japan manufacturing purchasing managers’ Index (PMI), which acts as a broad gauge of manufacturing activity, showed a sharp fall to 44.8 in March, down from 47.8 in February. That was its lowest reading since April 2009.
Joe Hayes, economist at IHS Markit which commissions the survey, said: “The likelihood of the manufacturing recession deepening in the coming months is high. Latest data showed a sharp fall in inventories of inputs, which firms are going to find challenging to replenish in order to sustain factory production.”
