Japan’s Manufacturing Activity, Spending Fall More Than Expected
- Q1 Business conditions Index for large manufacturers decreased to 6 from 12 prior
- The amount of companies that believe business conditions are not favorable increased
- Capital expenditures decreased by 0.9% versus an expected decrease of 0.7%
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Both USD/JPY and the Nikkei 225 fell in the wake of Japan’s first quarter Tankan manufacturing and capex data disappointed against already tempered expectations. The large manufacturing and non-manufacturing measures both fell short of expectations with readings of 6 and 22 respectively (against forecasts of 8 and 24, and previous readings of 12 and 25). The outlook measures – reflecting expectations for business conditions ahead – were equally disappointing. Factory industry firms posted a reading of 3 versus both a forecast and previous measure of 7. The service sector outlook unexpectedly dropped to 17 from 18 – it was expected to grow two points.
Amid a troubled forecast for the Japanese economy, business spending (referred to as ‘all industry capital expenditures (CAPEX)’ presented a worrying -0.9% contraction in quarter compared to the previous quarter’s 10.8% growth.
Similar to the ‘large’ industry figures, the small manufacturing and non-manufacturing measures came in lower than expected as well. Outlooks for the both factory and service based industries turned pessimistic with readings of -6 and -3 respectively (versus previous readings of -4 and 1).
The negative numbers weighed on both the local capital markets with the Nikkei stumbling while the USD/JPY would follow suit. While the weak data undermines Japanese growth forecasts, the Yen crosses have shown a sensitivity to ‘risk trends’ that frequently sees a strong correlation to equities and other return-oriented assets.
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