Still in Asia and the long awaited Tankan survey of Japanese business produced the expected bad result: a sharp fall in sentiment among some of the biggest companies and exporters in the country: in fact confidence plunged by the largest amount in 34 years as forecast last week by Bloomberg.
The Bank of Japan said confidence tumbled to minus 24 in December from minus three the previous quarter, hitting the lowest level since early 2002, according to the Bank’s survey of more than 10,000 firms.
The index’s 21-point quarter-on-quarter fall was its worse since August 1974 when business sentiment was battered by the fallout from the surge in oil prices starting in 1973, the first oil shock. (The second was in 1979-80 when Iran fell.)
As dramatic as they were, the Tankan results were widely expected and had little impact on Japanese shares, which led a rebound in the region on Monday amid expectations that there was still hope for a bailout for the big three American carmakers.
But analysts said there were still signs of optimism in the survey results (such as expecting profits to fall by less than what is already being reported) that the next couple of surveys will be even gloomier.
But this one was gloomy.
Manufacturers painted a grim outlook of business prospects, forecasting a further slump in confidence to minus 36 in March.
With industrial production down 13% in the past year, car exports falling, shipments of consumer and other manufactures weak, the fall isn’t surprising.
But it does show that the slump in Japan as a whole is getting deeper, and the recession probably will be worse than previously thought.
The Financial Times reported that in an interview with Japan’s newish central bank governor had said that the economy is likely to contract in the year ending March 2010.
According to the paper, the governor of the Bank of Japan Masaaki Shirakawa that the bank was poised next month to reverse its forecast of a mild recovery.
The forecast that “the economy for fiscal 2009 may turn negative” – a downgrade from the central bank’s current estimate of 0.6% – illustrates the widespread pessimism in the country about the prospects for a quick recovery of the world’s second-largest economy.
"The revelation of the bank’s concern about what Mr Shirakawa called “enormous” risk factors to the economy comes amid government efforts to buoy the economy, which shrank in the second and third quarters, that include emergency measures announced on Friday," the paper said.
The sharper contraction in the third quarter of 0.5% (from the first reading of 0.1%) was the first significant economy wide indicator that activity was slower than thought. Export and output figures for October have suggested a deepening from the September quarter.
Figures out in the next week for November will confirm the deceleration in the economy is happening faster than thought.
(The Tankan index measures the percentage of firms that think business conditions are good minus those that think they are bad.)
It showed that major Japanese manufacturers expect a 24.2% slump in pre-tax profits in the current financial year to March, while sales are expected to rise by less than 1% (0.9%) from the previous year.
Large companies in all industries indicated the intended cutting investment in new plants and equipment by 0.2% on average this year, in marked contrast to sharp increases in corporate capital spending seen in recent years.
That investment splurge has driven growth in the Japanese economy in recent years, led by exports to the US, Europe and increasingly China. All three areas are now slowing or in recession.
That in turn has produced over capacity in many industries from cars, to steel, copper refining, chemicals, paper, retailing etc.
Japan’s domestic economy is no where near strong enough to take up the slack because consumers have been battered by deflation, (but high inflation this year) and high levels of unemployment or under-employment.
So big companies, who drive the economy, are cutting back their investment plans (and starting to close factories and plants and cut staff numbers) in response to the financial crisis, raising fears that the current recession will be deeper and longer than previously feared.
Sony revealed 16,000 jobs would go in Japan and around the world last week. Panasonic is looking at a 96% drop in second half profit (probably a loss).
Toyota is closing factories temporarily, sacking contract staff and part time employees, cutting management pay and bonuses and slashing output in Japan and around the world. Honda is doing the day as is Nissan.
All these giants and others like them are surveyed by the Tankan and their actions are mirrored by the sentiments expressed in the survey.
Australia’s leading commodity export, ABARE said yesterday that despite robust economic growth achieved in early 2008, "the Japanese economy contracted in mid-2008, with real gross domestic product declining at an annualised rate of 1.8 per cent in the September quarter 2008, after falling by 3.7 per cent in the previous quarter.
"Lower private consumption expenditure and declining business spending and net exports were the main contributing factors to the economic contraction.
"Partial indicators released recently suggest economic activity in Japan is likely to remain subdued in the near term, as slowing external demand, especially from the United States and western Europe, and weakening profit expectations weigh on business confidence and capital investment plans.
"Falling equity market valuations
