Almost 90pc of Japanese companies see Trump as bad for business, Reuters survey shows

TOKYO, Feb 20 (Reuters): Almost nine out of 10 Japanese companies expect US President Donald Trump’s policies to negatively affect business, a Reuters survey showed on Thursday, the clearest sign yet of mounting worry in the United States’ top foreign direct investor.

The results of the survey show how the prospect of higher tariffs and increased trade friction between the United States and China has clouded the outlook for companies in the world’s fourth-largest economy.

Japan, a firm US ally, is also deeply reliant on China as both a manufacturing base and a key market for its machinery and other exports.

About 86% percent respondents said Trump’s policy measures would have an adverse or somewhat adverse effect on their business environment, with the remainder expecting a positive or somewhat positive impact.

In the same monthly survey in December, 73 percent said Trump’s second term in the White House would be harmful to their business environment. Trump officially took office last month.

Among the firms that regarded Trump’s policy initiatives as negative, 72 percent picked his trade strategy – including imposing more tariffs – as the most detrimental factor, and 26 percent chose deepening friction between the United States and China.

“Ratcheting up protectionism has nothing but a negative effect on the global economy,” a manager at an information services firm wrote in the survey.

Trump has already announced 25 percent tariffs on steel and aluminium imports, imposed 10 percent tariffs on goods from China, and threatened Canada and Mexico with steep tariffs, which are currently on a 30-day hold.

He has also directed his economic team to devise plans for reciprocal tariffs on every country that taxes US imports and to counteract non-tariff barriers.

Japan does not impose tariffs on cars, but the US government said during Trump’s first term that a variety of non-tariff barriers impeded access to Japan’s automotive market.

On Tuesday, Trump threatened tariffs “in the neighbourhood of 25 percent” on auto imports as soon as April 2.

“If the auto industry took a hit from tariffs worldwide, semiconductor sales may be affected as well,” an official at an electronics company said, underlining a potential ripple effect.

Among the firms that saw Trump’s policy measures as positive, 37 percent picked deregulation and tax cuts as the most beneficial factor, while another 37 percent chose his policy to help boost fossil fuel production.

Asked about their plans for business operations and investments in the United States, 16 percent said they were taking a more cautious stance, while 80 percent said they had no plans for change.

During his first in-person meeting with Japanese Prime Minister Shigeru Ishiba this month, Trump pushed Japan to invest in US energy and technology and sought a way out of a dispute over Nippon Steel’s (5401.T) $14.9 billion bid for U.S. Steel (X.N).

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Trump said Nippon Steel was now looking at an “investment not a purchase”, and he was fine with that. Japan’s top government spokesperson Yoshimasa Hayashi later said the Japanese steelmaker was considering proposing a bold change in plan from its previous approach of seeking an acquisition.

The survey was conducted by Nikkei Research for Reuters for 11 days to February 14. Nikkei Research reached out to 505 companies and 233 responded on condition of anonymity.

RATE HIKE IMPACT

On the Bank of Japan, 61 percent of respondents saw its recent rate hike as appropriate, while 25 percent believed the step was taken too early and 15 percent regarded it as too late, the survey showed.

The BOJ raised interest rates to 0.5 percent from 0.25 percent in January on the view Japan was on the cusp of sustainably achieving its 2 percent inflation target.

“The yen’s excessive weakness caused the continued outflow of national wealth. To arrest the trend, further interest rate hikes are in order,” a manager at a wholesaler said.

“That would prompt those companies that cannot survive in a ‘world with interest rates’, which ought to be a normal state, to bow out or transform themselves.”

Asked about the ideal timing for the next rate hike, 24 percent picked the July-September quarter this year and another 24 percent selected “next year or later”, while yet another 24 percent indicated that rate hikes were not desirable at any time.

The central bank’s hawkish board member Naoki Tamura said this month that the BOJ must raise interest rates to at least 1% by the second half of the fiscal year beginning April.

About 44 percent of survey respondents said an interest rate increase to 1 percent would adversely affect their capital spending, while 21 percent said rate hikes beyond 1.5 percent would have that effect.

“In parallel with rate hikes, we want the government to expand measures to facilitate capital spending,” an official at a rubber manufacturer said.