Business sentiment has become increasingly gloomy. The public and private sectors should work together to overcome the ongoing emergency by prioritizing the maintenance of employment.
The Bank of Japan released its Tankan quarterly economic survey for March. As infections with the new coronavirus continue to spread, the diffusion index, which indicates business sentiment, plunged among both large companies and small and medium-sized companies.
Among large companies, the index for the manufacturing sector stood at minus 8, down 8 points from the previous survey to hit the lowest level in seven years.
For nonmanufacturing companies, the index was an 8, down by 12 points, the largest drop since the 22-point plunge in March 2009 after the Lehman shock.
For the latest Tankan, 70% of the surveyed companies had responded by March 11. After that date cases have continued to be seen of suspended production and restrictions on going out in Europe and the United States, and the full impact of those measures is likely not reflected in the results. Further deterioration of business sentiment will inevitably be seen.
By industry, “accommodations, eating and drinking services” plummeted by 70 points, marking the worst level with minus 59.
These figures can be said to corroborate the significant impact caused by the self-imposed restraints on going out implemented by many more people and the decline in the number of foreign visitors.
In the category of “services for individuals,” which includes companies for entertainment facilities and tourism, the index worsened by 31 points, and there was a 24-point plunge for “transport and postal activities,” which include airline companies.
Nonregular employees account for three-quarters of the total workforce in hotel and restaurant industries. Should more nonregular workers have their contracts terminated by companies merely seeking to slash immediate costs, social unrest will likely spread.
The government and financial institutions should extend such support as financing for companies and small business owners who are faced with a sharp decline in income, to curb an increase in bankruptcies and unemployment.
It has become worrisome that the U.S. and European economies are being forced to stall. In all likelihood, the blow to export companies, including those of automobiles, will intensify in the future.
For example, seven major domestic automakers have nearly 30,000 client companies, including subcontractors and sub-subcontractors. Further deterioration in corporate sentiment will affect plans for capital investment and recruitment for a wide range of companies.
First and foremost, it is urgent to compile a supplementary budget bill for fiscal 2020 and have it approved at the Diet. It remains unknown how much time it will take to remedy the situation. The government should prepare for a prolonged battle and take additional appropriate measures whenever deemed necessary.
The Japan Business Federation (Keidanren) stressed its policy in an emergency proposal on economic measures to work toward preserving employment.
Regarding the hiring of new graduates in particular, it stated, “We will make utmost efforts to avoid creating a second employment ice age generation.”
There have been some moves to cancel hiring and job offers. Companies with sound management strength should steadily implement the measures contained in the proposal to the best of their capacity.
— The original Japanese article appeared in The Yomiuri Shimbun on Apr. 2, 2020.