Large Japanese manufacturers turned more optimistic about economic conditions in the fourth quarter but they lowered their capital expenditure plans for the current fiscal year, suggesting firms remain wary over future business conditions. Large manufacturers said they expect sentiment to worsen slightly in January-March, offering additional evidence that companies see some risks to the economy.
The survey, which was taken a week after Donald Trump's US presidential election victory, follows a large downward revision to gross domestic product data in the third quarter. The revision was due to a fall in capital expenditure and lower inventories, raising concerns about corporate vitality.
"The survey reflects some uncertainty about Trump's policies," said Daiju Aoki, economist at UBS Securities. "Companies are also sceptical about the rapid decline in the yen. They don't expect the yen to remain weak and don't think the benefits will last long."
The joint survey by the Ministry of Finance and the Economic and Social Research Institute, an arm of the Cabinet Office, recorded a business survey index (BSI) of sentiment among large manufacturers at plus 7.5 in October-December from plus 2.9 in July-September. Large manufacturers expect their sentiment index to worsen to plus 4.6 in January-March, the survey published on Friday showed. Japanese companies plan to raise capital expenditure by 2.5 percent in the fiscal year that started in April, down from their previous projection of a 4.9 percent increase.
While campaigning, Trump regularly suggested he would enact protectionist trade polices, which could potentially harm Japan's export-dependent economy. Since winning the presidency, Trump has softened his tone on some issues, but there is still a lot of uncertainty about how he will run the government given his free-wheeling style and lack of political experience, economists say. The yen skidded to an eight-month low versus the dollar after Trump's election win.
Normally, Japanese exporters would welcome a weak currency because it boosts overseas revenues, but the BSI survey suggests companies think the yen could easily reverse course. If there is increased volatility in currencies, this could make it difficult for companies to draw up capital expenditure plans, Aoki also said. The BSI measures the percentage of firms that expect the business environment to improve from the previous quarter minus the percentage that expect it to worsen. Japan's economy grew much more slowly in the third quarter than initially estimated, revised data showed, as capital expenditure dried up and companies ran down inventories.
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