Japan's largest manufacturers are feeling gloomy

TOYOTA, JAPAN - MAY 30: Takashi Inui of Japan is dejected after missing a goal during the Japan vs Bulgaria international friendly football match at Toyota Stadium on May 30, 2013 in Toyota, Japan. (Photo by Adam Pretty/Getty Images) Sentiment levels among Japan's largest manufacturers fell to the lowest level since mid-2014 in the first quarter of 2016, dragged down by weak external demand and recent strength in the Japanese yen.

The government's business survey index fell to -7.9 over the quarter, falling heavily from the +3.8 reading seen in the three months to December 2015.

The headline figure is derived by taking the percentage of firms which expect the business environment to improve minus the percentage of those which expect it to worsen.

It essentially means pessimists outnumber optimists, albeit by a small margin.

Looking ahead to the June quarter, the reading improves to -3.5, suggesting a modest improvement is expected.

Perhaps more concerning than the headline index, capital expenditure plans for the 2016/17 financial year fell by 6.6%, suggesting that firms plan to tone down spending rather than increase it in the period ahead.

For a government and central bank already battling to spur growth and inflationary forces, this is not good news should sentiment be replicated in reality.

The weak March quarter survey fits with other economic data released during the quarter, with the exception of labour market indicators.

On Tuesday next week, the Bank of Japan will deliver its latest monetary policy decision. In light of persistently weak data and following additional policy easing announced by the European Central Bank overnight, risks for further action from the bank at this meeting are clearly growing, even with the checkered track record ultra-easy monetary policy has delivered to date.

Read more posts on Business Insider Australia »