©Reuters. A worker checks machinery at a factory in Higashiosaka, Japan, June 23, 2022. REUTERS/Sakura Murakami/File Photo
By Tetsushi Kajimoto
TOKYO (Reuters) – Japanese manufacturing business morale soured sharply in February, with pessimists outnumbering optimists for the first time in 10 months, Reuters’ Tankan survey found, raising concerns about a further economic decline.
The monthly survey, which closely tracks the Bank of Japan’s (BOJ) quarterly tankan, follows data last week that showed Japan unexpectedly slipped into recession in the fourth quarter and lost its place as the world’s third-largest economy to favor of Germany.
The loss of business confidence raises fears that Japanese firms may become reluctant to raise wages enough to achieve stable, sustainable inflation in a country that has been mired in a deflationary mindset for more than a decade.
Speculation is rife that the Bank of Japan could abandon its negative interest rate policy as early as March or April if wage and price growth recover sufficiently.
The Reuters Tankan is one of several data points the BOJ scrutinizes in making such assessments.
The survey of 499 large Japanese non-financial companies found that manufacturer sentiment fell to minus 1 in February from plus 6 the previous month, the first negative reading since last April. The index is expected to rebound to plus 6 in May.
The Reuters Tankan indices are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means that pessimists outnumber optimists. About half of the companies interviewed responded on condition of anonymity.
“Domestic consumption has weakened compared to last year. Automobiles are selling well, but rising prices dampen the appetite for consumer demand, particularly for food and daily necessities,” he wrote in the survey the manager of a chemical company.
The service sector index fell to plus 26 in February from 29 seen earlier this year. The index is expected to fall further to plus 23 in May.