Sentiment in Japanese manufacturing sector remains stagnant

The large companies in the Japanese manufacturing sector do not see improvement in the business climate, but are not worsening. However, they are more cautious than expected with regard to the past quarter, and at least optimistic over three years. This suggests large-scale survey of the Bank of Japan, the results of which are published after the end of each quarter. This situation will impede the central bank to encourage inflation and revive the economy.

Tankan index in the three months remains at 6 points, which was the level at the end of June. This is the lowest value since the beginning of Abenomics (large-scale plan of Prime Minister Shinzo Abe to restart the economy). Moreover, the expectations of analysts was for a value of 7 points. A positive result means that optimists are more than the pessimists. The expectations for the last quarter of the year the index to remain 6 points.

Large companies in all industries plan to increase capital spending slightly to 6.3% in the fiscal year to March 2017. In the previous survey expected share of capital expenditures was 6.2%.

The strong JPY, which gained about 19% since the beginning of the year “eat” corporate profits and lower import prices, making it difficult BoJ to encourage inflation. Authorities in Tokyo have difficulties to overcome deflation and achieve sustainable growth, the economy is caught between expansion and contraction. Unchanged Tankan index value becomes clear after last week consumer prices fell a sixth consecutive month, while household spending shrank more than expected.

The index of companies outside the manufacturing sector decreased by 19 points at the end of June to 18 points now expectations.

Large companies in the manufacturing sector predict that the yen will trade at an average of 107.92 JPY/USD in the year to the end of March 2017. The forecasts in the survey three months ago were for a rate of 111.41 JPY/USD.

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