Weak yen hits Japanese manufacturers’ sentiment
Print Edition
CONFIDENCE at big Japanese manufacturers worsened in the January-March quarter and is seen turning negative in the second quarter as a slumping yen ramped up the costs of raw material imports, a survey showed, complicating Tokyo’s stimulus-driven campaign to revive the economy.
The quarterly poll by the Ministry of Finance and the Cabinet Office released yesterday suggests the drawbacks of a weak yen may be outweighing its benefits, which have not spread to broader sectors of the economy.
The loss of confidence comes as the Bank of Japan is committed to its massive monetary easing program even as the US Federal Reserve moves closer to raising interest rates, triggering a renewed slide in the yen.
The yen skidded to eight-year lows against the US dollar to above 122 yen on Tuesday, on hopes the Fed may raise rates as early as in June, increasing worries that an unrelenting drop in the yen could prove more harmful in the long run.
“It could be worrisome if the yen depreciation accelerates under the current deflationary circumstances where companies are unable to pass on costs, causing a profit-squeeze,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
The business survey index of sentiment at large manufacturers stood at 2.4 in the January-March quarter, down from 8.1 in the prior three months.
The sentiment index is seen worsening further to minus 0.9 in the second quarter.
“We hear from companies that they are facing rising raw materials costs on higher import prices, a labor shortage and increase in electricity bills,” said a finance ministry official.
Last month, major utilities raised electricity charges due to a weaker yen, but they are set to cut utility bills in April as they reflect tumbling oil and LNG prices with a lag.
Japanese Prime Minister Shinzo Abe is closely watching the yen’s weakening trend, which could damage companies that import materials and are unable to pass on costs, his key economic adviser Etsuro Honda said on Tuesday, adding that the dollar around 120 yen is not problematic for the economy.
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