Japan's tankan sentiment worsens as exports dip

Big manufacturers grow pessimistic as growth in key European and Chinese markets stalls

PUBLISHED : Tuesday, 02 October, 2012, 12:00am
UPDATED : Tuesday, 02 October, 2012, 2:46am

Big Japanese manufacturers became more pessimistic as slowdowns in China and Europe sapped export demand and pushed Japan closer to an economic contraction.

The quarterly tankan index for large manufacturers fell last month to minus 3 from minus 1, the fourth negative reading, the Bank of Japan said yesterday.

The median estimate of 18 economists surveyed by Bloomberg was for minus 4. A negative figure means pessimists outnumber optimists.

The report follows data last week showing a second monthly decline in industrial production in August, and JP Morgan Securities and Credit Suisse Group said that Japan's economy probably shrank in the third quarter. With consumer prices still falling, the Bank of Japan may be forced to add stimulus again this month as it remains a long way short of its 1 per cent inflation target.

"Japan's economy will probably have two consecutive quarters of contraction in the July-September and October-December periods," said Kiichi Murashima, the chief economist at Citigroup Global Markets Japan. "Exports are the main reason for the economic contraction."

Shipments have fallen for three months, sliding 22.9 per cent in August to the European Union and dipping by 9.9 per cent to China.

"Economic conditions in Japan's main export markets are very unstable," Finance Minister Jun Azumi said last week.

Growth is further threatened by a spat between Japan and China over islands in the East China Sea. The crisis is hurting the US$340 billion trade relationship, causing cancellations of 40,000 seats on All Nippon Airways flights, while Toyota and Nissan are cutting production in China.

China's economy is poised for its weakest annual expansion in 22 years, and the 17-nation euro economy is on the brink of recession after contracting 0.2 per cent in the second quarter.

Economic confidence in the euro zone fell last month as leaders tried to rein in the debt crisis.

Large manufacturers probably would stay pessimistic in the current quarter, yesterday's report showed, with the outlook index for December also at minus 3. Japan's industrial production is expected to have slid again for last month, the government said last week.

The sentiment index for carmakers fell to 19 last month from 32 in June, the tankan survey showed, as government car subsidies ran out and anti-Japanese sentiment flared in China. The outlook index for December was seen falling to minus 5.

"Companies are becoming more concerned about the outlook for the economy and their businesses," said Yoshimasa Maruyama, the chief economist at Itochu.

"Some of them may start to consider postponing their planned business investment for this fiscal year."

On September 19, the Bank of Japan followed the government in downgrading its assessment of the domestic economy, saying growth had "come to a pause".

The economy expanded an annualised 0.1 per cent in the quarter to September, according to a median forecast of economists surveyed. Morgan Stanley and Citigroup expect the economy to contract in the two quarters to December.

Sony, Japan's largest electronics exporter, cut its annual profit forecast by 33 per cent in August, and was downgraded by Standard & Poor's last month to two levels above junk.

Large manufacturers forecast on average that the yen would trade at 79.06 per US dollar in the year to March, according to yesterday's report.