OKYO (Kyodo) — Business confidence among major Japanese manufacturers worsened for the first time in seven quarters in March, hurt by energy and raw material costs that surged on Russia's invasion of Ukraine and pandemic-related supply bottlenecks, the Bank of Japan's Tankan survey showed Friday.
The key index measuring sentiment among companies such as automakers and electronics makers dropped to 14 in March from 17 logged three months earlier, the lowest level since June 2021. It was above the average market forecast of 11 in a Kyodo News survey.
The index for large nonmanufacturers, including the service sector, fell to 9 from 10 in the previous survey in December, highlighting the severe blow dealt by restrictions imposed in response to the COVID-19 pandemic. The reading also marked the first deterioration in seven quarters.
The Tankan index represents the percentage of companies reporting favorable conditions minus the percentage reporting unfavorable ones.
Russia's attack on Ukraine that began on Feb. 24 has sent crude oil and commodity prices sharply higher amid a spike in geopolitical risk and supply concerns. Russia is a major exporter of crude oil and natural gas.
The yen has been falling sharply against major currencies such as the U.S. dollar and the euro, inflating the cost of imported raw materials.
Higher costs are threatening to erode profits with wholesale price inflation accelerating at its fastest pace in decades. Sentiment among firms in sectors ranging from pulp and lumber to chemicals and food all deteriorated.
The surge in costs comes as manufacturers have been grappling with parts shortages caused by the COVID-19 pandemic.
Over the next three months, sentiment among manufacturers is expected to worsen further to 9 while that among nonmanufacturers will likely fall to 7, according to the Tankan survey.
The BOJ surveyed 9,362 companies, of which 99.1 percent responded between Feb. 24 and Thursday.
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