Soaring energy costs, supply chain disruptions and Russia’s invasion of Ukraine have slumped Japanese business confidence for the first time since the outbreak of the Covid-19 pandemic two years ago, a major survey showed.

Confidence among Japan’s big manufacturers fell for the first time since the April-June 2020 quarter, the Bank of Japan’s latest quarterly survey showed, marking a turning point for Asia’s second-largest economy cautiously optimistic About ending the pandemic.

But the survey, conducted from late February to late March, also showed that big disconnect There is a discrepancy between the foreign exchange assumptions made by Japanese companies and the recent market reality of the yen plunging to a seven-year low this week.

The Bank of Japan’s Tankan business confidence survey released on Friday fell to a positive 14 in the first quarter from a positive 17 in the previous three months, while the median market forecast was a positive 12.

The Tankan, one of Japan’s most comprehensive economic indicators, polls opinion on whether the business environment for big companies is “favorable” or “unfavorable.” Subtract the latter from the former to get a composite reading between minus 100 and plus 100, with numbers above zero indicating positive business sentiment and numbers below zero indicating negative sentiment.

While sectors such as production machinery maintained the index in the quarter ended March, sectors such as pulp and paper deteriorated. With the revival of the Omicron model, car production fell after the plant was shut down.

Large manufacturers expect conditions to deteriorate further in the next three months, with an index of +9 expected.

The decline was also reflected in large non-manufacturers, which slipped from a plus-10 to a plus-9 in the survey. Among these companies, accommodation and food services are expected to improve significantly due to the lifting of quasi-emergency Covid-19 measures, but the Bank of Japan said it expects the industry sub-index to remain in negative territory for the next three months.

The investigation found that financial market instability due to the Omicron wave, the war in Ukraine and the subsequent higher cost Due to rising energy prices and the depreciation of the yen.

“The survey was designed to assess the depth of downside risks to the Japanese economy, but it was not as bad as previously expected,” said Takuji Aida, chief economist at Okayama Securities.

While a weaker yen could put additional pressure on profits due to higher procurement costs, Aida said the weaker currency had given a boost to Japan’s economy by raising export prices, which would mitigate the negative impact of the war in Europe to some extent.

The survey found that the average forecast rate for the fiscal year starting in April was 111.93 yen to the dollar, a sharp contrast to recent days. The yen was trading around 122 against the dollar on Friday morning. seven-year low ¥125.1 this week.

John Vail, chief global strategist at Nikko Asset Management, said a better-than-consensus survey result should have a slightly positive impact on equities, but “for now, external factors are much more important.”