Business confidence in Japan deteriorated further in the three months to September, with sentiment among large factory firms down to the weakest level in more than six years, results from the Bank of Japan's latest quarterly Tankan survey showed.
The sentiment index for large manufacturing enterprises fell to 5 in the third quarter from 7 in the three months to June. This was the lowest level since June 2013, when the index was at 4, but exceeded the consensus estimate of economists polled by Econoday of a reading of 3.
Overall confidence among manufacturers worsened, with the related index dropping to negative 1 from 3.
The all-industry index, which covers large, medium-sized and small enterprises from the manufacturing and nonmanufacturing sectors, fell to 8 from 10. The index for large nonmanufacturing companies fell to 21 from 23.
Large companies across manufacturing and nonmanufacturing industries expect capital expenditure to rise 6.6% in the fiscal year ending March 2020, compared with the Econoday consensus forecast of 6.9%.
While investment plans stayed above historical averages, companies are expected to be more cautious over the coming quarters "given the bleak export picture and feeble growth momentum," said Stefan Angrick, senior economist at Oxford Economics.
Separately, a survey by Jibun Bank Corp. and IHS Markit showed Japanese manufacturing activity extending its slump in September, with the associated Purchasing Managers' Index dropping 0.4 point from the previous month to 48.9, the lowest reading since February. The decline in factory activity was attributed to output and new orders, which both fell at faster rates in September.
The deterioration in business conditions came ahead of today's increase in Japan's consumption tax to 10% from 8% "and suggests that manufacturing and exports are both likely to have been drags on third-quarter GDP," said Joe Hayes, economist at IHS Markit.
Manufacturers continued to hire more workers but the rate of job creation slowed, reflecting lower new work inflows and ageing employees' retirement, the PMI said. Separate data from the country's Statistics Bureau showed the seasonally adjusted unemployment rate at 2.2% in August, unchanged from the prior month.
