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Japan’s biggest companies have taken a gloomier view of trading conditions for the first time since the start of the pandemic recovery, as fears grow over the wider impact of Russia’s invasion of Ukraine on an economy. brittle.

As big businesses remain optimistic, a confidence index among the country’s biggest manufacturers fell to 14 from a revised 17 in the previous quarter, the first deterioration since June 2020, according to the central bank’s quarterly Tankan report on Friday.

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Sentiment among large non-manufacturers slipped to a revised 9-10 in the December report.

The results reflect business sentiment after taking into account the effect of omicron restrictions and a potential rebound in their increase, soaring energy costs, a weaker yen and the implications of the war in Ukraine. The impact of these factors varies from sector to sector depending on their dependence on global trade, their national orientation and their size.

Deteriorating sentiment is likely to cement the Bank of Japan’s stance in favor of monetary easing, although inflation numbers are expected to jump significantly from this month on the back of energy.

Unlike other major central banks that are moving towards a tightening policy, the BOJ has taken an unprecedented series of measures to keep bond yields low this week to maintain its support for the recovery. The economy has not recovered to its pre-pandemic size and is expected to have shrunk slightly in the first quarter.

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What Bloomberg Economics says…

“The focus is on the impact of the weak yen and rising oil prices on appetite for capital investment and on earnings and prices.”

Team of Asian economists

Click here to read the full report.

The number of Covid cases hit an all-time high through mid-February, crushing domestic businesses in the service sector, while the Russian invasion adds to the fastest rise in business costs in four decades . A strong earthquake hit the northern region this month, disrupting economic activities and supply chains, including those of Toyota Motor Corp, another negative factor for businesses.

The yen’s rapid weakening has also become a concern for many domestically-focused firms, as it hit the lowest level since 2015 on Monday after the BOJ announced unlimited bond-buying operations. . While a weaker currency helps inflate the profits of large exporters, small businesses and households are likely to be hit hard.

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Prime Minister Fumio Kishida on Tuesday ordered his ministers to compile a new economic package to cushion the economic pain caused by rising energy and commodity prices in a bid to maintain public support ahead of this election. summer.

The Prime Minister met with BOJ Governor Haruhiko Kuroda on Wednesday to demonstrate that they are on board with the policy.

Economists expect the Japanese economy to have contracted in the first quarter mainly due to the omicron variant and they increasingly see unimpressive rebound risk this quarter with the conflict in Ukraine and consumers facing higher prices for oil and basic necessities.

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