Japan's Nikkei share average edged lower on Monday morning after a central bank survey showed manufacturers' confidence worsening amid trade tensions with Washington, although some firms found support on yen expectations.

The Nikkei fell 0.2 per cent to 22,270.76 at the midday break while the broader Topix dropped 0.3 per cent to 1,725.86.

Japanese big manufacturers' business confidence worsened in June from three months ago, the Bank of Japan's closely watched quarterly “tankan” survey showed on Monday.

Defensive stocks, which have outperformed lately, were sold. Retailer, food and railway stocks languished, with drugstore operator Matsumotokiyoshi Holdings falling 2.3 per cent, Yakult Honsha tumbling 3.4 per cent and East Japan Railway dropping 0.8 per cent.

Sharp Corp , which jumped 15 per cent on Friday after it cancelled plans to issue up to $2 billion in new shares, dropped more than 5 per cent.

However, the survey also showed big firms plan to raise their capital spending by 13.6 per cent in the financial year from April 2018, versus economists' median estimate of a 9.3 per cent gain.

“It makes sense that companies' capital spending is rising this fiscal year after they reported strong earnings results last fiscal year, especially when there's a shareholders' push to spend funds more effectively,” said Tsuyoshi Ueno, a senior economist at NLI Research Institute.

“But for future business sentiment, companies are seen having a hard time pricing in the potential impact of a trade war to their businesses at this point.”

Chip equipment stocks

Meanwhile, shares of manufacturers like chip equipment makers, which had been hit recently as investors avoided investing in cyclical stocks on trade war worries, gained ground. Traders said investors were somewhat relieved that the yen expectations of about 107 to the dollar in the tankan were weaker than the assumption of about 105 some companies had made in their earnings releases in May.

Japanese stocks, particularly exporting firms, tend to perform better when the yen weakens or is expected to weaken. The precision machinery sector was up 0.9 per cent, while the electric machinery sector gained 0.7 per cent.

Advantest Corp rose 1.0 per cent and Tokyo Electron added 0.9 per cent. Nikon Corp soared 1.4 per cent, Olympus Corp surged 1.8 per cent and Panasonic Corp added 1.1 per cent.

The latest tankan showed big manufacturers set their expected dollar/yen rate at 107.26 for this fiscal year, compared with 109.66 yen seen three months ago. The dollar stood at around 111 yen in the early Monday trade.

Analysts said that investors will likely stay on the sidelines this week amid growing tension ahead of a July 6 deadline when the US and China are due to impose $34 billion of tariffs on their respective imports.

Related Topics
comment COMMENT NOW