TOKYO -- The mood among Japanese manufacturers deteriorated for the first time in eight quarters in March, the latest edition of the Bank of Japan's quarterly Tankan sentiment survey shows. The shift reflects growing concern about U.S. President Donald Trump's protectionist policies and a rising yen.
In the survey, released on Monday, the most closely watched index for large manufacturers stood at plus 24, down 2 points from December. The last time the reading declined was in March 2016.
The index is calculated by subtracting the ratio of companies that say business conditions are "unfavorable" from those responding "favorable." The March reading is below the median estimate of plus 25, based on predictions from research institutes compiled by Nikkei group company QUICK.
Trump's unpredictable policies have affected the prices of raw materials and jolted the financial markets. Many industries have felt the impact, though the steel and nonferrous metals sectors have been hit the hardest.
Large manufacturers expect conditions to worsen further in the coming three months, predicting the key index will fall to plus 20. U.S. protectionism and yen appreciation remain the top concerns. "Whether the sentiment has really peaked will depend on how long yen appreciation persists from here on," said Mari Iwashita, Daiwa Securities' chief market economist.
Sentiment among large nonmanufacturers, including the service sector, also worsened in March. The reading fell to plus 23, down from 25 in December and the first drop in six quarters.
A labor shortage was the primary factor behind the decline. Large nonmanufacturers expect the index to fall to plus 20 three months down the line.
Large manufacturers and nonmanufacturers share the concern about the tight labor market, the survey shows. The index of employment conditions -- those that say labor is "excessive" minus those that say it is "insufficient" -- declined to a 26-year-low of minus 22, down from minus 19.
Despite the worsening Tankan readings, any dampening effect on investor sentiment appears minimal. The benchmark Nikkei 225 index was in positive territory on Monday morning, while the yen-dollar rate was stable.