November 9, 2011 / 11:32 PM / 7 years ago

Japan corp mood skids on strong yen, global slowdown -Reuters Tankan

* Manufacturer sentiment index +1 in Nov, non-manuf +3

* Manufacturer mood in Feb seen down to -5, non-manuf +2

* Reuters poll closely correlated with BOJ tankan

By Rie Ishiguro and Izumi Nakagawa

TOKYO, Nov 10 (Reuters) - Japanese manufacturing sentiment slid in November for the second straight month on a raft of negative factors such as the yen’s rise to record highs, softening demand from emerging markets and the impact of floods in Thailand, a Reuters poll showed on Thursday.

The monthly poll, highly correlated with the Bank of Japan’s closely watched quarterly tankan corporate survey, also showed companies were pessimistic about three months ahead, underscoring the cloudy outlook for the economy’s recovery prospects.

The manufacturing sentiment index, derived by subtracting the percentage of pessimistic responses from optimistic ones, fell five points from October to plus 1.

The index is seen dropping further to minus 5 in February, which would represent the first negative reading since June, led by sectors such as electric machinery makers and transport equipment producers including automakers.

Service-sector sentiment fared better than that of the manufacturing sector given its relative resilience to the strong yen, though it was not robust enough to lend support to the overall economy.

The yen repeatedly hit record highs in late October on safe-haven demand as doubts intensified about Europe’s ability to contain the debt crisis.

That prompted Japanese authorities to sell a record amount of yen to tame the high-flying currency, while the Bank of Japan eased its ultra-loose policy further through an increase in government bond purchases.

But the impact from these steps proved short-lived and the yen remains stubbornly high, threatening to harm corporate revenues and the economy’s export-reliant recovery.

Adding to corporate woes were severe flooding in Thailand that has caused many Japanese manufacturers to suspend operations there, as well as easing growth in China and other emerging economies due to the effects of monetary tightening.

Toyota Motor Corp , Japan’s top automaker, this week withdrew its annual profit guidance as the Thai floods threaten its output.

The cautious views expressed in the survey prevailed just as the economy had emerged from a recession caused by the devastating earthquake in March.

The Reuters Tankan was taken from Oct. 21 to Nov. 7, covering 400 big companies, of which 251 responded.

The index for non-manufacturers rose two points to plus 3, up for the first in time three months due to some improvements at retailers and information service firms. The index is expected to edge down to plus 2 in February.

“Since September, more and more companies seem to have decided to put capital spending on hold due to yen rises and Europe’s economic woes,” said an electric machinery firm.

“This attitude is prevalent inside Japan and is even spilling over to Japanese firms operating in the rest of Asia.”

One transport equipment company said: “We had expected an earnings recovery in the October-March fiscal second half but the outlook is uncertain due to yen rises and Thai floods.”

Japan’s economy probably rebounded in the third quarter but analysts expect a sharper slowdown in the final months this year than previously thought.

The BOJ is expected to pause when its board meets next week but stands ready to offer further monetary stimulus if Japan’s recovery is threatened.

The BOJ’s latest tankan showed on Oct. 3 that Japanese big manufacturers’ sentiment improved in the third quarter on the back of a post-disaster recovery, but that they were cautious about business in the months ahead.

The BOJ tankan roughly matches economic cycles, so the central bank closely watches the survey’s results in gauging underlying trends in the economy and guides monetary policy based on its outlook.

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

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