By Tetsushi Kajimoto
TOKYO (Reuters) – Japanese manufacturers turned pessimistic about business prospects for the first time in more than six years in August as the spectre of a global downturn looms large amid the escalating Sino-U.S. trade war, the monthly Reuters Tankan survey showed on Monday.
Concerns about weakening global demand intensified last week after a closely watched bond market indicator pointed to the growing risk of a U.S. recession, and data showed Germany’s economy was in contraction and China’s was worsening.
The news further soured the outlook for export-reliant economies such as Japan’s.
The monthly poll, which tracks the Bank of Japan’s (BOJ) closely-watched tankan quarterly survey, found manufacturers’ mood slid for a third straight month to minus 4 in August from the prior month’s plus 3.
It was the weakest sentiment reading since April 2013, when it was minus 4, dragged down by electric machinery, metals, food processors and transport equipment.
Confidence in the service sector also plunged, to plus 13 from plus 25 in July, due to big drops at wholesalers and retailers. That will raise questions over how much longer domestic demand can remain resilient enough to offset rising external pressures, with a rise in the domestic sales tax set for October.
Private consumption constitutes about 60% of the economy.
While the Reuters Tankan’s manufacturers’ sentiment index is seen swinging back to plus 3 over the next three months, the service-sector index is expected to remain unchanged at plus 13 in November.
“The U.S.-China trade war, Japan’s export curbs to South Korea and the recent yen rises have formed a bottleneck for sales,” a manager of an electric machinery maker wrote in the July 31-Aug. 14 survey.
“The selling price remains in a downtrend due to expansion of e-commerce markets, while a scheduled sales tax hike keep shoppers on guard against price increases,” a retailer manager wrote in the Reuters poll of 504 large- and mid-sized companies. A total of 258 firms responded on condition of anonymity.
The BOJ’s last tankan out earlier last month showed big manufacturers’ business confidence fell to a nearly three-year low in the quarter to June.
The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.
(Reporting by Tetsushi Kajimoto; Editing by Kim Coghill)