Japan: Continuous improvement in business operations and signs of slowdown
2023-12-14
■ In the short-term survey conducted by the Bank of Japan in December, it was confirmed that the improvement in the operating conditions of large enterprises is still ongoing
■ The momentum of economic expansion has slowed down, and the cyclical stage of economic recovery may be nearing its end
The Bank of Japan Short-term Survey (December 2023 survey) released this morning shows that the economic situation assessment DI shows that both the large enterprise manufacturing industry (12, up 3 points from the previous month) and the large enterprise non-manufacturing industry (30, up 3 points from the previous month) are currently on the rise, but the future outlook is on a decrease in both the large enterprise manufacturing industry (8, down 4 points from the current situation) and the large enterprise non-manufacturing industry (24, down 6 points from the current situation). The operating conditions of large enterprises continue to improve, and the current situation of non-manufacturing industries is judged to maintain a high level of DI. In the manufacturing sector, the easing of supply restrictions in the automotive industry, the bottoming out of the semiconductor cycle, and the increasing demand for visits to Japan from the non-manufacturing sector, Cebu, and catering services, have contributed to the improvement of business conditions. However, in the future, DI is expected to decline in both manufacturing and non-manufacturing industries, and the momentum of economic expansion is gradually slowing down. The correlation between DI and the economic cycle is particularly high in the assessment of the operating conditions of large manufacturing enterprises, indicating that the cyclical stage of economic recovery may be nearing its end.
The equipment investment plan for the entire industry of large enterprises for the fiscal year 2023 (an increase of 13.5% compared to the previous fiscal year) was slightly lowered during the September survey (an increase of 13.6% compared to the previous fiscal year), but it remained the third largest growth rate in the past decade in the December survey. According to the statistics of mechanical orders, there are obvious signs of sluggish equipment investment, which is far from the plan. However, since the investigation in March, there have been plans to significantly increase equipment investment.
The sales and profit plan for the entire industry and scale shows that in the 2023 fiscal year, sales (increased by 2.5% compared to the previous fiscal year), recurring profit (increased by 4.0% compared to the previous fiscal year), and sales recurring profit margin (6.74%) have been raised from the September survey. In the second half of the year, due to rising raw material prices, increased labor costs, and exchange rate fluctuations, the profit expectations for the non-manufacturing sector have weakened. However, supported by good performance in the first half of the year, the profitability for the whole year is expected to improve. As a prerequisite for the business plan, the USD/JPY exchange rate forecast for the fiscal year 2023 (across all industries) is 139.35 yen, with an appreciation level of approximately 6 yen compared to the current exchange rate (closing on December 12: 145.43 yen). This will boost the performance of export-related industries, but for domestic demand-related industries, it will become a factor in rising procurement costs.
The sales price judgment of large enterprises shows a downward trend in the manufacturing industry (current: 26, future: 20), but it is still relatively high in the non-manufacturing industry (current: 26, future: 28), indicating the persistent pressure of service price increases. Against the backdrop of a slowdown in the pace of economic recovery, with factors such as the disappearance of delayed demand and a decrease in actual income, households' tolerance for price increases may be further questioned.
■ The momentum of economic expansion has slowed down, and the cyclical stage of economic recovery may be nearing its end
The Bank of Japan Short-term Survey (December 2023 survey) released this morning shows that the economic situation assessment DI shows that both the large enterprise manufacturing industry (12, up 3 points from the previous month) and the large enterprise non-manufacturing industry (30, up 3 points from the previous month) are currently on the rise, but the future outlook is on a decrease in both the large enterprise manufacturing industry (8, down 4 points from the current situation) and the large enterprise non-manufacturing industry (24, down 6 points from the current situation). The operating conditions of large enterprises continue to improve, and the current situation of non-manufacturing industries is judged to maintain a high level of DI. In the manufacturing sector, the easing of supply restrictions in the automotive industry, the bottoming out of the semiconductor cycle, and the increasing demand for visits to Japan from the non-manufacturing sector, Cebu, and catering services, have contributed to the improvement of business conditions. However, in the future, DI is expected to decline in both manufacturing and non-manufacturing industries, and the momentum of economic expansion is gradually slowing down. The correlation between DI and the economic cycle is particularly high in the assessment of the operating conditions of large manufacturing enterprises, indicating that the cyclical stage of economic recovery may be nearing its end.
The equipment investment plan for the entire industry of large enterprises for the fiscal year 2023 (an increase of 13.5% compared to the previous fiscal year) was slightly lowered during the September survey (an increase of 13.6% compared to the previous fiscal year), but it remained the third largest growth rate in the past decade in the December survey. According to the statistics of mechanical orders, there are obvious signs of sluggish equipment investment, which is far from the plan. However, since the investigation in March, there have been plans to significantly increase equipment investment.
The sales and profit plan for the entire industry and scale shows that in the 2023 fiscal year, sales (increased by 2.5% compared to the previous fiscal year), recurring profit (increased by 4.0% compared to the previous fiscal year), and sales recurring profit margin (6.74%) have been raised from the September survey. In the second half of the year, due to rising raw material prices, increased labor costs, and exchange rate fluctuations, the profit expectations for the non-manufacturing sector have weakened. However, supported by good performance in the first half of the year, the profitability for the whole year is expected to improve. As a prerequisite for the business plan, the USD/JPY exchange rate forecast for the fiscal year 2023 (across all industries) is 139.35 yen, with an appreciation level of approximately 6 yen compared to the current exchange rate (closing on December 12: 145.43 yen). This will boost the performance of export-related industries, but for domestic demand-related industries, it will become a factor in rising procurement costs.
The sales price judgment of large enterprises shows a downward trend in the manufacturing industry (current: 26, future: 20), but it is still relatively high in the non-manufacturing industry (current: 26, future: 28), indicating the persistent pressure of service price increases. Against the backdrop of a slowdown in the pace of economic recovery, with factors such as the disappearance of delayed demand and a decrease in actual income, households' tolerance for price increases may be further questioned.