Japanese Manufacturers’ Confidence Falls, Service Sector Slumps: Reuters Poll

Introduction

Confidence among big Japanese manufacturers has fallen sharply, while morale in the services sector has also slumped, according to a Reuters poll for September. The decline in sentiment is attributed to concerns about a slowdown in China’s economy and its impact on global and domestic growth.

Key Findings

• Confidence at big Japanese manufacturers fell the most in eight months
• Morale in the services sector also slumped
• Both sectors have a subdued outlook
• Many companies complain of weak China demand and high input costs

Manufacturers’ Sentiment

The Reuters Tankan monthly poll of 502 big manufacturers showed a sharp fall in the sector’s sentiment index to plus 4, from plus 12 in August. This is the biggest drop since January. The survey serves as a leading indicator for the Bank of Japan’s quarterly tankan survey and provides a quick health check of business conditions.

Challenges Faced

In written comments, many Japanese firms expressed concerns about elevated input costs of raw materials and weak demand at home and abroad. The ongoing Ukraine war and tensions between the US and China were also seen as headwinds.

Service Sector

The Reuters Tankan non-manufacturers index dropped nine points to plus 23 in September, the biggest decline since May 2020. This suggests a slight decline in the BOJ’s quarterly tankan. The outlook for the service sector also indicates challenging business conditions for the rest of the year.

Conclusion

The sharp decline in confidence among Japanese manufacturers and the slump in the service sector highlight the challenges faced by the country’s policymakers. The weak domestic demand raises doubts about the ability of exports to fuel an economic recovery. The outlook for the rest of the year remains subdued.

Reporting by Tetsushi Kajimoto Editing by Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.

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