Now is the time to raise the alert over the cooling of corporate sentiment caused by the slowdown of overseas economies.
According to the Bank of Japan's quarterly Tankan survey for March, the diffusion index showing corporate business confidence stood at plus 12 for big businesses and manufacturers, seven points down from the previous quarter, marking a worsening of the index for the first time in two quarters. The margin of decline was the largest in six years and three months. The index for non-manufacturers declined three points to plus 21.
Japanese business confidence worsened probably due to signs of business slowdown seen not only in China but also in Europe, as well as the United States, which had been upbeat. The Tankan report underscored the fact that the percentage of businesses taking a cautious view has been increasing. This produces the possibility of a yellow traffic light for the domestic economy's outlook.
Viewed by type of industry, deterioration was most pronounced in the machinery industry, which sends huge amounts of exports to China. The index dropped 12 points for the electrical machinery industry, which manufactures electronic parts and other products. These types of industries have many subcontractors and affiliated companies, causing concern that the pessimistic business outlook will spread.
The diffusion index fell eight points from the previous quarter for small and medium-size companies.
Big businesses and manufacturers expect business conditions to worsen in the future as well. A deterioration of 11 points is forecast for the key industry of automobile manufacturing. It is feared moves to restrain production will prevail among not only big firms but also small and midsize firms.
What requires attention is the future course of trade negotiations. Japan's auto exports to the United States are expected to become a focal point in the bilateral talks that are set to start in the middle of this month. Tokyo should not yield to unreasonable U.S. pressure. The two countries are called on to work out an agreement that is in line with the principle of free trade.
Boost labor supply
Views have emerged that the Chinese economy will pick up in the latter half of this year in anticipation of pump-priming and other measures to be taken by Beijing. But no optimism is warranted because excessive debts held by the private sector have yet to be resolved.
The government and the Bank of Japan, which are responsible for the nation's economic management, need to study policy options now and prepare for the downside risk to business.
Businesses, on the other hand, should not take too pessimistic a view. In this year's spring labor-management negotiations, certain amounts of pay hikes were able to be agreed upon. Personal consumption, which accounts for a majority of the gross domestic product, is showing signs of picking up. Domestic demand is solid.
Investments in energy-saving projects and demand for the replacement of superannuated facilities are persistent. Businesses that have funds to spare are called on to continue investing with an eye on the future.
Labor shortages are serious, particularly in the nonmanufacturing industry. According to the Tankan quarterly survey, the index showing corporate sentiment over a lack of workers has remained on par with those recorded during the period of the bubble economy.
If the labor shortage is left unresolved, corporate capacity to supply products and services will not be able to catch up with demand, thus becoming a factor in restraining economic growth. It is imperative to prepare the environment in which women and the elderly find it easier to work, and to steadily proceed with the acceptance of foreign workers.
(From The Yomiuri Shimbun, April 5, 2019)
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