Business sentiment has been declining. Views on the outlook for business performance are growing more cautious. The government and the Bank of Japan should do their utmost to keep the economy from stalling.
The Bank of Japan released its Tankan quarterly survey for September. The diffusion index for large manufacturers’ current business conditions stood at plus 5, down 2 points from the previous survey for June. It marked the third straight quarter of deterioration, hitting the lowest reading in six years and three months.
Deterioration in sentiment was conspicuous among automobile and production-use machinery makers. It can be perceived that companies, particularly export-oriented ones, are experiencing increased anxiety amid growing uncertainty over prospects for the overseas economy.
The diffusion index for large nonmanufacturers, mostly in domestic-demand oriented companies, deteriorated for the first time in two quarters. Holding back the overall sentiment among these nonmanufacturers were companies in the retailing, accommodations, eating and drinking and other service businesses.
A bearish tendency in all industries toward fixed investment is worrisome.
The fixed investment planned by large enterprises in all industries for this fiscal year marked a year-on-year increase of 6.6 percent, lower than the figure seen in the previous survey in June.
The retained earnings of enterprises have hit a record high of more than ¥460 trillion. But it is hard to say that the money is being utilized sufficiently, as it has mostly been deposited or used for such purposes as stock buybacks.
Enterprises with surplus financial strength are asked to plan their corporate strategies on the basis of a long-term perspective.
Not only labor-saving investments, including those made in response to labor shortages, but also investments that will contribute to future growth should be accelerated. Companies should work on the development of innovative technologies and products, and on the expansion of facilities with their eyes fixed on the spread of next-generation cellular network technology, or 5G.
The consumption tax rate has been raised to 10 percent. It will also become important for enterprises to return part of their profits to their workers through continued and steady wage hikes, thus preventing consumption from dropping.
According to the latest Tankan survey, large manufacturing enterprises assume the average yen-dollar exchange rate to be in the 108 yen range for this fiscal year. Should the yen advance further against the dollar, the business performance of export-driven firms will be strained.
The government and the Bank of Japan must strive to conduct policy management flexibly, on both fiscal and monetary fronts, so as to underpin the overall economy and hold in check the excessive advance of the yen’s value.
The Japanese economy is heavily dependent on China, the nation’s biggest trading partner. Many globally operating Japanese companies have production bases in China, from which they export their products to other countries.
Their supply chain activities tend to be unevenly conducted in China, and are thus vulnerable to political and economic circumstances. They need to recognize such perils.
In light of U.S. President Donald Trump’s hard-line stance toward China, it is considered inevitable for U.S.-China trade friction to linger for a protracted period. Shouldn’t Japanese enterprises review their business strategies on the assumption of such a scenario, thus reducing the risks involved for the sake of their corporate well-being?
If they do shift their supply chain bases from China to countries in Southeast Asia or elsewhere, it will still take time for them to secure supply sources for parts and components for their products and to train their local workers. It is important to take steps before it’s too late.
(From The Yomiuri Shimbun, Oct. 2, 2019)