Confidence at Big Japanese Manufacturers Slips From Recent High

(Bloomberg) -- Confidence among Japan's large manufacturers cooled for a second quarter after reaching a 13-year high at the end of last year. While trade tensions are casting a shadow over companies globally, big producers in Japan cited a lack of workers and the rising cost of materials as key concerns.

Key Takeaways

Right now Japan's super-tight labor market is worrying big business more than the risk of a global trade war. It's making it harder to hire workers and adding to pressure for wage rises. Despite this, businesses remain broadly optimistic and plan to increase investment. Ironically, the prospect of wage rises that so worry businesses is just what the government and the central bank want, to support household spending and spur inflation. Until pay for workers increases markedly, monetary policy in Japan will remain highly accommodative.

Economist Views

• "The BOJ will keep saying the price momentum is being maintained because business sentiment isn't plunging. And the BOJ will also say its policy is working, with many companies saying financing conditions are easy," said Junko Nishioka, chief economist at Sumitomo Mitsui Banking Corp. "What we learned from this Tankan is that domestic supply constraints are weighing on corporate sentiment rather than long-term, uncertain trade war concerns."
• "There's no glaring weakness here. We're still seeing everything above 20. That's very positive," Ed Rogers, chief executive officer of Rogers Investors Advisors, said on Bloomberg TV. "Regardless of trade wars, the boots-on-the-ground numbers are just not that bad."
• “What surprised me was capital investment, which was strong not only among manufacturers and but also among non-manufacturers,” said Nobuyasu Atago, chief economist at Okasan Securities Co. “It's possible that foreign tourists, labor-saving investment and the Olympics are boosting capital investment.”

Other Details

• Large manufacturers forecast the yen will trade at 107.26 per dollar in the fiscal year ending in March 2019.
• Among small manufacturers, sentiment fell slightly to 14, while that of service firms declined to 8 from 10.
• The Tankan was conducted from May 29 to June 29, surveyed 9,950 companies.

--With assistance from Masahiro Hidaka, Connor Cislo and Yoshiaki Nohara.

To contact the reporter on this story: Yuko Takeo in Tokyo at ytakeo2@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig

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