Tue, Dec 16, 2014 - Page 15 News List

Japan’s manufacturers’ sentiment sags

CAUTIOUS:The weak yen should provide a boost to exporters, but manufacturers are weighing the positive effect against the nation’s stalled recovery, an analyst said

Bloomberg

The confidence of Japan’s large manufacturers declined in the fourth quarter as a recession offset a boost from a weaker yen, underlining the economic challenges facing Japanese Prime Minister Shinzo Abe after his election win.

The tankan large manufacturers’ index slipped to 12 this month from 13 in September, the Bank of Japan said yesterday, lower than the median estimate of 13 in a Bloomberg News survey of economists. The index is forecast to drop to 9 in March next year.

A recession and an election victory that puts pressure on Abe to deliver on promised growth-boosting reforms are raising the stakes for his efforts to revive the world’s third-biggest economy. Burdened by debt, the government is counting on companies to increase investment and wages to fuel a recovery.

“Companies are still cautious,” Citigroup Inc economist Kiichi Murashima said. “I doubt capital investment will be implemented as planned, as companies are still not expecting strong growth in the economy. Implementing policies to boost growth will be an important task for Abe’s government.”

Sentiment among large non-manufacturing companies rose to 16 from 13. Across all industries, big companies plan to boost capital expenditure by 8.9 percent this fiscal year through March, compared with plans for an 8.6 percent increase in the September survey.

Large manufacturers based their plans on the assumption the yen would average ¥103.36 per US dollar in the current fiscal year. The Japanese currency traded at ¥118.21 against the US dollar at 9:26am in Tokyo, after touching a seven-year low of ¥121.85 on Dec. 8. Japan’s TOPIX declined 1 percent.

A weaker yen tends to help exporters by raising their competitiveness abroad and increasing the value of profits when repatriated. It also boosts costs for importers and squeezes households and domestically-focused companies.

“Sentiment among companies will improve gradually,” Dai-ichi Life Research Institute economist Yoshiki Shinke said, before the tankan’s release. “For now, companies are weighing the boost from a weak yen and the stalled recovery.”

Consumption slumped in the wake of the sales-levy increase in April, pushing the Japanese economy into two quarters of contraction. Abe last month postponed another tax hike by 18 months to April 2017, prompting rating agencies to cut Japan’s debt rating or warn of possible downgrades.

The government is considering an extra budget worth as much as ¥3 trillion to support the economy, according to people involved in the discussions.

The Bank of Japan bolstered an already-record stimulus on Oct. 31. The action helped accelerate the depreciation of the yen and boost Japanese stocks to a seven-year high.

The yen has weakened 28 percent since Abe took office in December 2012 and the TOPIX has risen about 65 percent.

Aggregate net income at 195 of the largest listed companies in Japan will expand 10 percent to a record ¥17.5 trillion this fiscal year, based on analyst estimates compiled by Bloomberg. Toyota Motor Corp last month raised its profit forecast to a record ¥2 trillion.

“It’s important to deliver the benefit of economic growth to every level of Japanese people by ensuring a recovery trend,” said Sadayuki Sakakibara, the chairman of Keidanren, the country’s biggest business association, on Monday last week. “We will work on creating a virtuous economic cycle through increasing employment and raising wages on the back of rising profits.”

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