Business | Markets
Japanese pessimism hits budgets
Large Japanese manufacturers became pessimistic for the first time in five years and prepared to tighten capital spending budgets as a financial crisis swept through crumbling export markets, a Bank of Japan survey showed on Wednesday.
- Reuters
- Published: 00:07 October 2, 2008
Tokyo: Large Japanese manufacturers became pessimistic for the first time in five years and prepared to tighten capital spending budgets as a financial crisis swept through crumbling export markets, a Bank of Japan survey showed on Wednesday.
The Tankan survey's index of big manufacturers' sentiment has turned negative around the time Japan entered its last two recessions, and the minus 3 reading in the September survey suggested the world's second-largest economy is again in recession.
Economists had forecast the index would fall to minus 2 from plus 5 in June.
The Tankan also showed the upheaval on Wall Street was stifling global economic growth, although analysts said many firms may have responded to the survey before investment bank Lehman collapsed on September 15, shattering confidence in the world's financial system.
"I'd say the figures probably factor in half of the credit crisis," said Soichi Okuda, chief economist at Sumitomo Shoji Research.
"The outlook index shows a minor deterioration in sentiment in Dec-ember, but that may prove too optimistic."
First deficit
The Lehman bankruptcy heralded the grimmest phase so far of the 13-month-old credit crisis triggered by US mortgage defaults. Since then, bank failures and nationalisations in the US and Europe have shaken confidence among consumers and businesses around the world.
Japanese exporters are facing their weakest markets in decades. In August the country posted its first trade deficit for any month since 1982, excluding the traditional export slowdown every January. Exports to the US recorded their sharpest ever decline.
Exports and capital spending were the main drivers of Japan's longest postwar economic expansion, which appears to have ended with a contraction in the second quarter.
"The data confirmed the widely held view that the Japanese economy is already in recession," said Okuda of Sumitomo Shoji.
The big manufacturers index has now fallen for four quarters and is at its lowest since June 2003, when Japan was emerging from the last recession caused by the collapse of a bubble in technology stocks.
The gauge has turned negative roughly at the start of the last two recessions - June 1997 to January 1999, and December 2000 to January 2002. In Japan a recession officially begins when growth starts to slow. A more widely used definition is two quarters of economic contraction.
Big manufacturers in the Tankan forecast the index for December at minus 4, suggesting they expected conditions to worsen over the next three months.
"Such business sentiment reflects weakness of the economy and uncertainty over the outlook," Chief Cabinet Secretary Takeo Kawamura told a news conference. "We need to monitor developments carefully."
Companies responded to the bleak outlook by cutting back on capital spending. Big firms plan to raise capital spending by 1.7 per cent in the year to March, compared with a 2.4 per cent rise forecast three months ago. Economists polled by Reuters had expected a 2.5 per cent rise in investment budgets.
"The most alarming aspect is the relatively weak reading for capital spending plans," said Naoki Iizuka, a senior economist at Mizuho Securities.
"Previously, it was widely expected that the current downturn in the economy would be short and not severe, but the tankan's capex reading throws cold water on that view."
The tankan, meaning short-term economic outlook, also showed big firms expect recurring profits to fall 9.4 per cent this fiscal year. In June they had predicted a 7 per cent fall.
Hitting households
The sentiment index for big service-sector firms stood at plus 1, down from plus 10 three months ago and below economists' forecast of plus 5. They also expect conditions to worsen over the next three months. In a sign that worsening business conditions are spreading to households amid high fuel and food prices, separate government data showed wage earners' total cash earnings and overtime pay both fell in August from a year earlier.
The sentiment index for financial institutions fell to its lowest since comparable data started in December 2003, a reflection of the global financial turmoil.
The Tankan index is made up from the percentage of firms reporting a favourable business environment minus those reporting unfavourable conditions.
More from Markets
More from Business
Business Editor's choice
-
Do unemployment figures flatter to deceive?
Jobseekers and recruiters give out mixed signals ranging from optimism to downright despair even as official data show recovery
-
Banks can increase their share
Longer opening hours, more locations outside cities and lower charges can help
-
Geepas idea blossomed in Dubai
The journey led from a small shop in Bahrain to a $1.27b company in the UAE
