There’s growing concern that Japan’s economy may have contracted in the quarter that’s just ended, which would tip the nation into its second recession since Prime Minister Shinzo Abe took office in 2012.
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“The Tankan results indicate that Japan’s outlook remains grim”, said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance in Tokyo. The Large Manufacturers Index fell to 12 versus the 13 consensus; this marks the lowest level since the first quarter of 2015.
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.
The Bank of Japan has been pumping billions of dollars into the economy to spark inflation towards its 2 percent goal by September 2016, and has remained adamant that prices will move up over time despite faltering external and domestic demand. “In that respect, I think we should not be too much optimistic about the prospects for future business confidence”.
The 0.5 percent contraction in industrial production followed a negative figure in July and missed market expectations for growth in output last month. But confidence among large retailers, banks, real estate companies and other non-manufacturers gained 2 points to plus 25 for the fourth straight quarter of improvement, thanks to strong sentiment by accommodations, food and beverage service sectors on the back of increasing foreign visitors. The BOJ attributed the deterioration to weak exports and production amid the slowdown in China and emerging economies.
Scores of Japanese firms depend heavily on China, from automaker Nissan to factory robotics maker Fanuc. “Additional easing by the Bank of Japan next month looks all but inevitable”, he added. “The economy is likely to remain at a standstill until worries over uncertainties such as shaky financial markets and the outlook over US monetary policy subside”.
September, BOJ Governor Haruhiko Kuroda kept his pledge to expand the monetary base at an annual pace of 80 trillion yen ($666 billion). It aimed to pumped cash into the economy to kick start growth and conquer years of deflation.
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Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute, said the data have effectively set in stone the formulation of an economic stimulus package by the government.
