The Tankan survey damps down hope that the economy is making a swift recovery after the contraction caused by the VAT hike in April. The headline index of the survey – business sentiment in the manufacturing enterprises – improved marginally to 13 (12 in June Tankan), but overall sentiment lost two points. In particular, business sentiment in the non-manufacturing, such as wholesale and retail trade, deteriorated. These sectors still feel the impact of the rise in the sales tax and the yen depreciation, which have caused substantial losses in purchasing power. Nevertheless, there are still some bright spots, such as construction that has benefited from the stimulus programme.
On average, enterprises expect business conditions to remain unchanged in the coming three months. However, there are some remarkable changes. The large car makers expect conditions to worsen considerably (to -5 from 20 in September). In addition, the business climate in the construction sector could moderate. By
contrast, the large department stores anticipate a substantial improvement (to 11 from -1) due to the waning effect of the VAT hike.
Enterprises expect a substantial slowdown in sales growth in the current fiscal year (April 2014-March 2015) compared with FY2013, and a decline in profits, albeit it less than in the June Tankan.
Nevertheless, the good profits in FY2013 and the favourable financing conditions might stimulate capital spending in FY2014. In fact, enterprises have revised up their investment plans.
Most enterprises have sufficient capacity but report substantial manpower shortages, in particular in the non-manufacturing sector. It suggests that investment will be mostly in labour and energy saving devices.
BY Raymond VAN DER PUTTEN
To Read the Entire Report Please Click on the pdf File Below