Business confidence at big Japanese manufacturers and services sector firms slid in April from the prior month, dragged down by cost-of-living pressures and shaky economic conditions in major market China, a Reuters monthly poll showed.
The yen's weakening to levels unseen since 1990 during the heyday of the asset-inflated bubble is lifting the cost of imports in a blow to household consumption, according to the Reuters Tankan survey.
Moreover, while the fall currency has boosted the value of exports, volume of shipments have not benefited as much, the survey found.
The Reuters Tankan sentiment index for manufacturers stood at plus 9, down from the previous month's 10, dragged down by chemicals and food processing.
The services sector index fell to plus 25 from plus 32 in the previous month, despite some gains by retailers. The survey, conducted April 3-12, found that both sectors' sentiment indexes improving slightly over the coming three months.
The monthly Reuters Tankan, which closely tracks the Bank of Japan's quarterly tankan survey, was conducted during the time the Japanese currency hit its 34-year lows to the dollar beyond 153 yen. That has prompted repeated warnings from authorities that they stood ready to take action against speculative or destabilising currency moves. The dollar broke above 154 yen this week.
"Our sales appear to be boosted due to the impact of a weak yen, but there's no sign of recovery in terms of volume," a manager of a chemicals maker wrote in the survey on condition of anonymity.
The Reuters Tankan canvassed 497 large non-financial Japanese firms, of which 235 responded during the survey period.
"Japanese firms on the whole may be riding momentum towards pay raise, but price hikes have sapped consumers' appetite for purchasing items such as food and daily goods," wrote a chemical firm's manager.
On top of the fragile domestic demand, external factors were also cited as a source of concern for Japanese firms.
"Demand has not stabilised due to delay in China's economic recovery and uncertainty over the outlook such as decoupling between U.S. and Chinese economies," a manager of a paper/pulp maker wrote in the survey on condition of anonymity.
The BOJ's last tankan showed on April 1 services sector optimism hit a 33-year high in the first quarter on inbound tourism and rising profits from price hikes. But that was offset to some extent by same survey's findings of sliding sentiment for big manufacturers for the first time in four quarters.
On Monday, data showed Japan's core machinery orders - a key gauge of capital spending - rebounded sharply in a welcome sign for domestic demand.
Yet, the overall economic impulse so far this year has pointed to insufficient demand in the economy to mount a robust recovery in the near term. That's one reason why the Bank of Japan has flagged a cautious track to further monetary tightening following its landmark decision to end negative interest rates last month.
The Reuters Tankan indexes are calculated by subtracting the share of pessimistic respondents from optimistic ones. A positive figure means optimists outnumber pessimists.
