A slowdown in China and weakness at home dented Japanese firms’ confidence last quarter, a central bank report showed Thursday, as tepid data suggest the world’s third-largest economy has slipped into recession.
The disappointing Tankan survey supplied the latest evidence that Prime Minister Shinzo Abe’s growth blitz, dubbed Abenomics, was faltering, as speculation grows that the Bank of Japan (BoJ) would have to expand its massive asset-buying plan as early as this month.
“While today’s Tankan was not as bad as most had feared, it nonetheless corroborates other signs that Japan’s economic recovery has ground to a halt,” Marcel Thieliant from Capital Economics said in a commentary.
The survey of more than 10,000 companies nationwide found that confidence among major manufacturers worsened in the three months through September, dipping to plus 12, from the last report’s plus 15.
The report is the most comprehensive indicator of how Japan Inc. is faring and marks the difference between the percentage of firms that are upbeat and those that see conditions as unfavorable.
“(The result) reflects the slowdown in overseas demand, especially in the Chinese economy,” said Junko Nishioka, chief economist at Sumitomo Mitsui Banking Corp.
In one bright spot, sentiment among non-manufacturers picked up, which analysts said may be due to a weak yen drawing record numbers of tourists to Japan.
But they warned that tepid consumer spending at home was a red flag.
“The important thing is how much domestic demand is going to increase going forward,” Nishioka said.
“In that respect, I think we should not be too much optimistic about the prospects for future business confidence.”
The report come a day after government data showed Japanese factory production fell unexpectedly for a second month in August, while separate figures last week showed consumer prices fell for the first time in more than two years.
– ‘Dampened mood’ –
The previous Tankan report showed sentiment among major manufacturers had improved to the highest level since March 2014, just before the government raised Japan’s sales tax.
That hike, the first in 17 years, slammed the brakes on consumer spending, and sent Japan’s economy into a brief recession.
Analysts have warned over a return to contraction in the July-September quarter, after a contraction in the three months to June, owing to a slowdown in key trading partner China, weak consumer spending at home and soft exports.
Scores of Japanese firms depend heavily on Asian markets, particularly China, from automaker Nissan to factory robotics maker Fanuc.
The Tankan was published a day after the International Monetary Fund voiced concern about the global economy, partly weakened by China’s slowdown.
Analysts are increasingly betting that the BoJ will be forced to turn on the easing taps sooner rather than later.
The BoJ “will have to acknowledge that weaker external demand has dampened the mood at home when members meet next week”, Thieliant said, referring to the bank’s two-day policy meeting from Tuesday.
The central bank’s 80 trillion yen ($665 billion) annual asset-buying scheme — similar to the Federal Reserve’s quantitative easing — was a key pillar of Abe’s policy. It aimed to pumped cash into the economy to kickstart growth and conquer years of deflation.
Tsuyoshi Ueno, a senior economist at NLI Research Institute, predicted the BoJ would fire off more stimulus early next year.
“The Japanese economy is slowing at a pace faster than we had expected,” he said.
“Policymakers had envisaged a recovery being supported by strong domestic demand, but the vision is faltering… The BoJ will have to fire additional easing.”