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Japan's manufacturing mood drops to a 6-month low in October - Reuters Tankan

Japan's manufacturing mood drops to a 6-month low in October - Reuters Tankan

The service-sector outlook improved to a level not seen since the outbreak of the coronavirus epidemic, according to the Reuters Tankan poll for October.

Manufacturers were the least optimistic in six months, while the service-sector mood remained in contraction, as Japan's economy faces a global chip shortage and rising raw material costs.

The monthly poll, which tracks the Bank of Japan's closely watched "tankan" quarterly survey, found that manufacturers' confidence is expected to remain high and that it will rise rapidly for non-factors in the coming three months.

The survey of 503 large and mid-sized firms conducted from Sept. 29 to Oct. 8, of which 267 responded, gave a mixed picture, with some firms struggling to cope with pandemic drag while others were enjoying from strong global demand.

"While business hasn't recovered to what it was before the coronavirus, the worst of the epidemic is over and conditions are on a recovery path," said spokesman for oem machine manufacturer.

The Reuters Tankan sentiment index for manufacturers fell to 16 in October from 18 a month earlier - its lowest since April while the service index rose to minus 1 from 2.

(For a more detailed table of the results, click )

The BOJ's latest tankan business survey for July-September, released this month, showed that big manufacturers' business mood improved for a fifth consecutive quarter, with companies responding to strong global demand.

The Reuters Tankan reported that firms were suffering from rising raw material and energy prices, which are putting strain on corporate profit margins in the world's third-largest economy.

According to a food manufacturer manager, "Food spending is starting to slow down."

"While raw material prices are rising, it's not being translated into sales prices as consumers' deflationary mindset is strong," he added.

Japan's wholesale rate of inflation hit a 13-year high in September as rising global commodity prices and softer yen push up import costs, according to BOJ data, putting monetary policy at risk.

The Reuters Tankan reported that the worldwide chip and part shortage weighed heavily on manufacturers' business conditions, especially among automakers, with the autos/transport equipment sector reading dropping to -31 in October from -14 in September.

"Demand for semiconductor-related goods is strong, but we're being affected by production cuts at car companies and factories producing factory machinery," said a manager at sandpaper maker. "We've had substantial demand for transistor-based devices for years, and demand is very strong," added he added.

Others, such as steelmakers, said they were seeing decreases in orders due to the semiconductor shortage.

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