Business sentiment among large Japanese manufacturers has declined moderately in June compared to three months ago — down for the second straight quarter — according to 14 private think tanks’ estimates ahead of the Bank of Japan’s ongoing tankan quarterly survey, which is seen as an important measure of the economy’s performance.
The institutes’ forecasts on the diffusion index for large manufacturers’ current business conditions, the most closely watched item in the central bank survey, range from plus 20 to plus 23.
In the previous tankan in March the headline index came to plus 24, down from plus 26 three months before, posting the first drop in eight quarters apparently due to concerns about protectionist moves by the administration of U.S. President Donald Trump.
The index shows the percentage of companies seeing good business conditions minus those feeling the opposite. The BOJ is scheduled to announce the results of the June tankan on July 2.
The Mizuho Research Institute, which estimates the June index for large manufacturers will be plus 22, cited rising labor costs and an increase in procurement costs stemming from higher crude oil prices as negative factors.
The Japan Research Institute noted that exports of electronic parts have been slow, while Nomura Securities Co. pointed to worries about trade friction between the United States and China. The two institutes’ estimates put the index at plus 23 and plus 22, respectively.
The think tanks’ projections for the large manufacturers’ business outlook index toward September range from plus 18 to plus 24.
Capital expenditures in fiscal 2018 are expected to increase steadily from the previous year. The average estimate among 13 of the 14 institutes on the growth in that year’s combined capital spending at large manufacturers and nonmanufacturers stands at 9.4 percent, stronger than the 2.3 percent expansion cited by surveyed companies in the March BOJ tankan.
Regarding inflation, the BOJ on Monday released a summary of opinions from its policymakers in which some voiced concerns over the recent weakness in price increases.
“The upward pressure on wages has been weak despite the increased tightness in the labor market, and firms also have remained cautious in their wage setting,” said one member of the BOJ’s Policy Board at the meeting held June 14 and 15, where it decided to maintain aggressive monetary easing.
“Therefore, it is likely that achieving the price stability target will still take time,” the member added.
The slowing of price gains over the past several months despite a solid economy has posed yet another stumbling block to the central bank’s efforts to achieve 2 percent inflation.
Another board member said, “It is necessary to thoroughly analyze once again the background to the recent weakness in wages and prices as well as its effects on inflation expectations” ahead of the next meeting in July, after which the BOJ will release inflation and economic growth forecasts.
