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Japan manufacturers’ mood slips as rising costs pressure profit margins


© Reuters. FILE PHOTO – The Universal Powertrain Mounting System by Nissan Motor Co., Ltd with a 2-layer pallet structure, which is compatible with gasoline, EV, and e-POWER(HV) vehicles, was pictured in Kawachi, Tochigi prefecture, Japan, October 8, 2021. REUTERS/Maki Schira


By Daniel Leussink

TOKYO (Reuters). Japanese companies turned less optimistic about business conditions in January. This is a sign of rising energy costs and the Omicron variant, as revealed by the Reuters Tankan poll.

The monthly survey which follows the Bank of Japan’s closely-watched “tankan” quarterly survey showed that both manufacturers and service firms are more positive about the next three months.

A poll of 502 companies of medium and large size revealed that some firms felt their bottom lines were under pressure from commodity inflation. However, 254 respondents said they believed their bottom lines would be better because of the strong global demand.

A manager from a manufacturer of metal products said that there is a rush to get the prices up in the poll, which was conducted between Dec. 22 and Jan. 7.

The Reuters Tankan sentiment Index for Manufacturers fell to 17 in January, from 22 December. It was down from the previous survey’s four-month high. However, the Service index reached a 23 month high of 8, from 6. In the prior month. Click here for a more detailed table.

After the BOJ’s most recent “tankan”, business survey, which showed that there had been a slowdown in manufacturers’ recovery, the poll revealed that profit margins at certain firms of the third largest economy took a beating from rising energy and raw material prices.

According to a survey, “While there are strong demand conditions,” the manager of a glass- and ceramics manufacturer said in his report.

A manager at steelmaker said, “Margins are declining due to the soaring raw materials prices.”

Last month’s BOJ tankan survey of October-December showed that service sector mood was at a 2-year peak, while indexes measuring big manufacturer sentiment were stable over the previous quarter.

Reuters Tankan poll revealed that despite the higher prices of raw materials, manufacturing confidence is expected to grow to 29 in April. Partly because there are strong predictions for sub-sectors like metal products/machinery or carmakers, which was partly why the poll by Reuters Tankan showed.

Service sector companies were expected to be more positive than January’s level. But, they said that the effect of the coronavirus virus pandemic (including the Omicron variant) continues to affect them.

Economists in private sector expect Japan to expand its economy over the next quarter and three months, despite the Omicron variant spreading at home and internationally as well as rising raw material prices clouding their outlook.

The Reuters Tankan index is calculated by subtraction of the percent of respondents who claim conditions are bad from those who state they are great. Positive readings indicate that optimists are more common than pessimists.

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