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Economy

Corporate Japan cautious of tariff risks ahead, Tankan shows

Companies grow pessimistic, even as economy holds steady

Japanese companies regardless of size and sector expect economic conditions to worsen in the coming quarter.
Japanese companies regardless of size and sector expect economic conditions to worsen in the first three months of 2019.   © Reuters

TOKYO -- Japanese companies are increasingly pessimistic about business prospects in the coming quarter as the trade war between the U.S. and China drags on, the Bank of Japan's quarterly Tankan report showed Friday.

An index of economic sentiment among businesses of all sectors and sizes grew 1 point in October-December to 16 in the first improvement in three quarters, driven by rebuilding efforts in areas hit by natural disasters. But the outlook for the coming quarter came in sharply lower at 10, with conditions seen worsening among manufacturers and nonmanufacturers alike regardless of size.

Though Japan's economy is currently holding steady, businesses are bracing for global risk factors like the U.S.-China trade war to take a heavy toll next year.

Sentiment among major auto sector players dropped 2 points this quarter to 14, more than reversing gains made in July-September, as new-car sales slow in the U.S. and China. For the first quarter of 2019, the outlook came in still lower at 8.

"Tariff risks are building," noted Chitoshi Yokota, President and CEO of Honda Motor-linked parts maker Keihin.

Meanwhile, sentiment at manufacturing tool makers fell for the second straight quarter and they expect conditions to worsen further.

"Clients are holding off on capital investment due to trade frictions between the U.S. and China," said Yoshiharu Inaba, chairman and CEO of industrial robot maker Fanuc.

A recovery would take "half a year at least, but could go on as long as one to two years," Inaba added.

Toshiba Machine CEO and Chairman Yukio Iimura, who also chairs the Japan Machine Tool Builders' Association, said overall order volumes are relatively high and "the fundamentals of the global economy are still in good shape." But "the situation is precarious," he continued, amid risks such as trade frictions.

For large enterprises across all sectors, fiscal 2018 capital investment plans reached an 18-year high in a December survey. "We're concerned about a possible market downturn, but we're not rethinking our investment at the present stage," said one Toyota Motor executive.

But Japan's biggest bearings maker, NSK, will "postpone our investments" and be highly selective in upgrading production capacity, said President and CEO Toshihiro Uchiyama.

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