Confidence among Japan’s largest manufacturers has worsened for the first time in seven quarters, but so far a repeat of the slump in 2008 isn’t on the cards.
But the fall in sentiment in our second biggest export market, adds to the belief that the economy is slowing and will probably suffer a quarter of negative growth for the three months to the end of this month.
A combination of a stronger yen, the fading impact of government stimulus measures and the slowdown in demand from some of the country’s major export markets in Asia, especially China, looks like producing at least three months of contraction.
In fact many companies cited the high value of the yen as the major concern.
Yesterday’s quarterly Tankan index of sentiment of large manufacturers from the Bank of Japan fell to a reading of 5 in December from 8 in September.
(A positive number means optimists outnumber pessimists.)
And the survey showed that sentiment is expected to fall to a minus 2 reading in March.
That sounds bad, but at the depths of the recession the Tankan had a reading of minus 54, which is deeply pessimistic.
The number of big non-manufacturers reporting favourable business conditions also outnumbered those taking a less positive view, fell to plus one from plus 2.
This is expected to fall to minus 1 in the March quarter.
Japan’s December quarter growth is expected to fall to minus 1.9% annual, or around minus 0.5%, from an annual 4.5% in the third quarter, or 1.1% quarter on quarter, according to a survey from Japan’s Economic Planning Association.
Third quarter growth was boosted by solid business investment, but a surge in consumption caused by government stimulus and incentives to buy cars and electronics and cigarettes, most of which end in the quarter.
The Tankan showed that large Japanese companies plan to boost spending by 2.9% in the year ending March 31, more than the 2.4% planned three months ago.
That’s another small positive from what was always forecast to be a negative reading.
One policy change that would not have been in the mix when the survey was conducted was last weeks’ move by the government to cut the corporate tax rate by 5% from next fiscal year (which starts on April 1).
Under a growth strategy unveiled earlier this year, the Democratic Party of Japan-led government aims to lower the 40% tax to a level closer to that of competitor nations – put at 25-30%. This was to occur over the next decade.
The decision to start with a 5% reduction, to start from next April, was a surprise for business.
That could be a game changer insofar as the March quarter’s Tankan survey is concerned.
