Japanese manufacturers remained close to the most pessimistic they have been in 11 years in July as the coronavirus outbreak hits global demand and deals a punishing blow to the export-reliant economy, the Reuters Tankan survey showed. But some firms, in particular those from the service sector, believed conditions would be less negative in the next few months, according to the monthly poll, which tracks the Bank of Japan’s (BOJ) closely watched Tankan quarterly survey.
Wednesday’s survey found that sentiment at manufacturers was largely unchanged at minus 44 in July from minus 46 the previous month, which was its lowest reading since June 2009. The service-sector gauge ticked up to minus 26 from minus 32. The Reuters Tankan index readings are derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A negative reading means that pessimists outnumber optimists.
“Demand is still weak, both overseas and domestically,” a manager at a chemicals maker wrote in the survey. All industry categories across manufacturing were pessimistic, underscoring the harsh conditions firms are facing as the health crisis slams the brakes on the world’s third-largest economy.
The survey showed manufacturers’ sentiment in October at minus 32 and that of service-sector firms at minus 16 as some respondents, such as a metals maker, saw a bottoming out in the auto sector, suggesting stronger demand ahead. A manager at a retailer said: “Though there are recovery signs, sales of new and used cars are still at a level of 70% to 80% from a year earlier.”
The BOJ is set to keep monetary settings steady later on Wednesday and provide a cautiously optimistic view on the economic outlook, signalling it has taken enough steps, for now, to offset the pandemic hit, sources told Reuters last week. The central bank may slightly cut its growth forecast for the current year to March 2021 but is expected to hold on to its view Japan is headed for a moderate recovery later this year as the virus crisis subsides.
All industry categories across manufacturing were gloomy about business conditions, according to the poll of 496 large- and mid-sized non-financial companies, of which 238 firms responded on condition of anonymity.
“Production activity is still facing constraints,” a manager at an electrical machinery maker wrote in the survey. Among services, those from the information/communications and retailers sectors were optimistic about business conditions, while the others were not.